Is it better to file for bankruptcy before or after filing for divorce?
The answer usually depends on whether you want to file for Chapter 7 or Chapter 13 bankruptcy and on whether you and your spouse can act amicably together.
Chapter 7 or Chapter 13
Chapter 7 bankruptcy proceedings are usually complete within a few months after filing. The Chapter 13 bankruptcy process, on the other hand, continues for three or five years and requires living on a strict budget, which puts stress on even the best marriages.
Couples can divorce while bankruptcy is in progress, but it requires a splitting, or bifurcation, of the case.
Cooperation, bankruptcy, and divorce
If you file for bankruptcy prior to divorce, it is important that you have an amicable relationship, as you will need to cooperate with one another.
If both spouses want to file for bankruptcy, you may want to file jointly. This may double the limit for exempt property and should make the division of property in the divorce easier. It will also cost less than filing individually. Before filing, you should be sure to learn how bankruptcy will affect jointly owned assets.
Divorce before bankruptcy
It may make sense to get a divorce before filing for bankruptcy in circumstances such as these:
- You will be paying spousal support that you want the court to consider in your bankruptcy petition
- You want to transfer some assets to your ex-spouse so they are not lost in the bankruptcy
- You are eligible to file Chapter 7 if you file alone, but your income is too high to qualify jointly
Divorce and bankruptcy are frequently close neighbors. The order they appear in can make a significant difference.