Divorce and debt are often intertwined. Debt problems in a marriage can sometimes result in divorce. Sometimes, the financial burden of divorce or the expenses of the divorce process force either or both partners into debt. In either event, it's fairly uncommon for a divorcing spouse to explore bankruptcy as a way to seek debt relief.
If you would like to pursue divorce and would also like to declare bankruptcy, the timing is crucial. There are a lot of things to consider when deciding if you should file before the divorce, concurrently with your divorce, or after your divorce. This blog discusses how you should decide to file for bankruptcy, as well as the advantages and disadvantages of declaring bankruptcy during, before, or following your divorce.
Filing for Bankruptcy Before Divorce: Its Advantages and Disadvantages
Declaring bankruptcy before proceeding with your divorce could help you in several ways. You and your partner will only be required to make one processing fee and could split the legal expenses of the bankruptcy lawyer when you declare bankruptcy first. Filing for bankruptcy first could make the asset split part of your divorce proceeding run more smoothly. In a typical divorce proceeding, the court divides the assets as well as any debts you have. When you and your partner obtain a discharge from your unsecured obligations, neither of you will be required to settle them once you have obtained the discharge. This eliminates the necessity for the court to separate them.
It's also worth noting that when a court orders your partner to pay a joint obligation, the creditor will not be affected by the court's decision. Because the lender is not a participant in your divorce, they can pursue payment from either you or your partner. If you don't get a bankruptcy discharge for a loan, the collector can go after what you owe irrespective of the ruling from the family court. If it has been discharged under a bankruptcy that both you and your partner file before filing for divorce, your creditor might not pursue any collection activity against either you or your partner.
There are a few drawbacks to declaring bankruptcy before filing for divorce. If you want to file for bankruptcy under Chapter 13 rather than Chapter 7, it might be a good idea to consider waiting until after the divorce has been finalized to submit your bankruptcy petition. This is because these two sorts of bankruptcy are not the same.
A Chapter 7 bankruptcy is often known as liquidation bankruptcy. Any non-exempt properties will be dissolved in Chapter 7 bankruptcy to settle a part of anything you owe to the creditors. In most circumstances, a debtor's assets are exempt, which means that you could lose very few possessions under a Chapter 7 bankruptcy.
Chapter 7 bankruptcy proceedings usually only last several months and could relieve you and your partner of any unsecured debt repayment obligations. However, you have to be capable of meeting the means test to petition this form of bankruptcy.
A Chapter 13 bankruptcy, on the other hand, is a form of bankruptcy that requires you to sign into a 3- to a 5-year repayment plan. If both you and your spouse declare bankruptcy under Chapter 13 bankruptcy before going on with the divorce, your combined repayment schedule will take a long time to complete. It would not be a smart idea to seek this form of bankruptcy before proceeding with the divorce unless both you and your soon-to-be ex-partner are on friendly terms.
Filing for Divorce and Bankruptcy at the Same Time
Declaring bankruptcy during your divorce is usually not a good option due to a couple of factors. This is because the bankruptcy and divorce proceedings will influence one another, leading the proceedings to be prolonged. Any non-exempt possessions will become a component of the bankruptcy estate once you declare bankruptcy. This suggests that unless your bankruptcy matter is resolved, the court in the divorce proceeding will not be allowed to distribute your possessions. If you're going through a divorce, spousal or child support concerns can slow the bankruptcy proceedings. It is preferable to pursue either divorce or bankruptcy first, rather than both simultaneously.
Pros and Cons of Filing for Bankruptcy After Divorce
Some couples prefer to first file for divorce, then declare bankruptcy once their divorces are finalized. This may be useful if you intend on filing for Chapter 13 bankruptcy to keep many more of your possessions or when your earnings are too large to be eligible to file for Chapter 7 bankruptcy. If you and your husband both have to declare bankruptcy, nevertheless, waiting till after the divorce is finalized implies that you could each need to cover your application fee for the bankruptcy petitions, resulting in higher legal expenses.
When you and your partner can't get along, having to wait till after the divorce to declare bankruptcy protection could be useful. If the divorce is contentious, it is then advisable to wait till it is finalized before filing for bankruptcy. It could help you to secure a debt discharge without needing to rely on your partner to comply with you in the bankruptcy proceedings.
Another advantage of waiting till after the divorce to declare bankruptcy is when your joint earnings and that of your partner are too great for you to be eligible for Chapter 7 bankruptcy as well as a speedier clearance of your obligations.
If your former partner was instructed to settle an outstanding debt, like a credit card debt or hospital bill, and the obligations were later dismissed during bankruptcy, the lender will be barred from attempting to recover from your former spouse.
Your partner's discharge, on the other hand, would have no bearing on the lender's ability to pursue you for payment of the debt. Since the ruling from the bankruptcy court for the clearance exceeds the order from the family court, you won't be capable of enforcing your ex-spouse's spouse's to settle the debt.
What Factors You Should Consider When Deciding When to File For Bankruptcy
When deciding whether you should file for bankruptcy or proceed with your divorce first, couples must put into consideration many legal and financial factors.
As we have seen, for most couples, financial difficulties can be a cause of contention. A Kansas State University report published in 2013 indicated that money disagreements are a leading cause of divorce. Given this, it isn't strange that many individuals who are overwhelmed by debt and decide to find relief by filing for bankruptcy are also planning to divorce.
It's also usually unreasonable to declare bankruptcy and file for divorce at the same time, and the sequence in which a couple decides to proceed could have significant financial as well as other consequences. For this reason, people must understand what to consider when determining which path to take.
Let's look at a few of the elements to think about while determining whether to declare bankruptcy before or after your divorce.
The Type of Bankruptcy
The kind of bankruptcy you would like to declare is among the most important elements in selecting when to declare bankruptcy. When the bankruptcy is an uncomplicated Chapter 7, filing it before the divorce could be the most ideal option. Because Chapter 7 bankruptcy could be filed and completed in a matter of months, there is no reason why you and your partner cannot file jointly, have your debts discharged, and then file for divorce.
However, since Chapter 13 bankruptcy will last 3 to 5 years, it might not be a wise idea to file before getting divorced. If you intend on proceeding with your divorce inside that time frame, you will need to have your bankruptcy case separated or closed once you and your husband have legally ended your marriage.
Your Household Earnings
Another element to take into consideration when considering whether to file bankruptcy pre or post-divorce is your average earnings. You will save more on filing costs and the expense of hiring an attorney when both you and your partner file a combined bankruptcy. However, because your family income is dictated by you and your husband, filing for bankruptcy before the divorce could imply that your earnings are too high to file for bankruptcy under Chapter 7. situation, declaring bankruptcy following your divorce could be helpful.
Your Assets
Working with an expert to understand how your possessions will be safeguarded when you pursue a combined bankruptcy alongside your partner before the divorce is a good idea. If you possess property collectively, like property, cars, as well as other possessions, this is crucial. Also, based on your state, declaring a joint bankruptcy alongside your spouse may provide you with additional security in the sense of extra exemptions.
For instance, if your property is exempted up to a hundred thousand for a sole bankruptcy filer, filing together could provide you an additional exemption, allowing you to exempt the property for up to two hundred thousand dollars.
Status of Your Relationship
If you and your spouse are on good terms, declaring bankruptcy before divorcing can be a reasonable alternative. Choosing to declare bankruptcy with a partner who is opposed to your interests, on the other hand, could be more harmful than beneficial. You'll have to rely on your partner to appear in court and present any financial paperwork, and you'll have to trust that they'll cooperate with you as well as your counsel. Never disregard the situation of your relationship when deciding whether to declare bankruptcy pre or post-divorce.
Cost Considerations
The costs of filing bankruptcy pre or post-divorce could also assist a couple in determining which alternative is best. Because the costs for a collaborative bankruptcy as well as a personal bankruptcy are about the same, applying jointly before divorcing could minimize per-person charges. Furthermore, declaring bankruptcy first could help speed up the divorce proceedings by reducing or even eradicating the necessity for debt allocation. This could assist both spouses to save money on divorce-related expenses.
Liability Problems
Declaring bankruptcy before filing for divorce could also lower the possibility of one spouse being held responsible for liabilities that the other partner consented to pay. Lenders are not constrained by the conditions of a divorce ruling, therefore creditors may pursue payments from the other party even though all obligations have been apportioned to one party. As a result, it may be preferable to settle debts through bankruptcy before the divorce settlement.
Interest Conflicts
Because of possible conflicts of interest, partners sometimes prefer to postpone declaring bankruptcy till after the divorce. Given the disparities in individual income, possessions, and debts, each partner's interests could be best served by filing for bankruptcy under a separate chapter. Partners in high-conflict marriages might also find it difficult to look honestly at their alternatives and reach an agreement on significant issues like which bankruptcy chapter they should file.
The concerns that can emerge across both family law, as well as bankruptcy proceedings, are many and intricate, and the proceedings that follow are frequently vindictive and emotionally charged. It's critical to plan ahead of time by receiving legal advice from someone who is competent in both fields and getting acquainted with basic family law topics. Make sure you consult with a lawyer right away if you would like to learn more about when filing for bankruptcy is the best option for you.
Contact a Sacramento Bankruptcy Lawyer Near Me
If you want to file for both divorce and bankruptcy, you should consult with a divorce as well as a bankruptcy attorney before proceeding. An experienced lawyer can assess your situation and assist you in determining which action to pursue first. Filing both simultaneously is usually not a smart idea. Your financial situation and if you and your partner can work cooperatively throughout the bankruptcy and divorce proceedings will determine whether you declare bankruptcy before, during, or after your divorce. For more information on this and issues regarding bankruptcy, contact the Sacramento Bankruptcy Lawyer at 916-800-7690.
