Use The Law To Put Your Life Back In Balance

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Use The Law To Put Your Life Back In Balance

photo of the firm's legal team

What happens when divorce leads to bankruptcy?

On Behalf of | Jul 31, 2019 | Uncategorized |

Money problems often result from divorce because the cost of establishing two separate households is much greater than managing just one. If one or both partners has significant debt, financial issues become compounded.

When struggling to pay the bills during or after a divorce, consider these factors to determine whether bankruptcy could provide a fresh start.

When should I file?

Most people file bankruptcy before moving forward with divorce. Taking this step provides relief from your creditors through an automatic stay that prohibits collection attempts. When the process is complete, you will receive either a debt discharge or reorganization into affordable payments.

If you file both petitions at the same time, the automatic stay on your debts and assets will prevent family court from dividing marital property. This can substantially prolong the divorce proceedings and increase your legal expenses. If you qualify for Chapter 7 bankruptcy, the process will be complete within about 90 days.

Though most divorcing couples considering bankruptcy should follow this advice, sometimes it makes sense to divorce before filing. These exceptions include the following situations:

  • You cannot qualify for Chapter 7 bankruptcy with your spouse, but you can qualify by filing alone.
  • You want to transfer certain assets to your former spouse so they will not factor into your bankruptcy petition.
  • You expect to pay spousal support and want those payments to factor into your bankruptcy petition.

Should we file separately or together?

If both spouses would benefit from bankruptcy, they may choose to file together. This is another reason to delay divorce until after you receive a successful debt discharge. Filing together costs less than filing two separate petitions and simplifies property division in the divorce.

Carefully consider the financial implications of both divorce and bankruptcy before moving forward with either legal process. Open communication with your spouse, potentially with the help of a mediator or counselor, can create an advantageous situation for both parties when debt plays a role in divorce.