One of the most common reasons for divorce is financial issues, so oftentimes a couple filing for divorce will also need to file bankruptcy. Whether it happens before, during or after the divorce, a bankruptcy filing will likely complicate the divorce action, regardless of whether the bankruptcy is filed jointly or individually.
Issues to consider with divorce and bankruptcy
Those contemplating bankruptcy and divorce should seriously consider determining a course of action before beginning these processes. These tips may be useful for starting what can be a process filled with many difficult decisions:
- Do not file your divorce and bankruptcy actions at the same time: Many who have gone through the process regret it if they try to do both at the same time.
- Start with bankruptcy: This may not be possible, but financial experts believe that bankruptcy is a better place to start. It puts a stop to creditor harassment and it can be advantageous to file jointly. By freezing the assets in bankruptcy, however, it also becomes harder to divide marital assets until the bankruptcy case is finished (or discharged).
- Chapter 7 is faster and likely more appropriate for individual taxpayers: The filing and reordering of assets and debts happens over a few months rather than Chapter 13’s restructuring with payment plans that last three to five years. Not all taxpayers qualify for a Chapter 13.
- Not all debt is discharged: There are many financial obligations that continue during bankruptcy, including alimony, child support, court fines, student loans and money owed to the government.
Start by making an informed decision
The circumstances of each couple’s finances are different, so it is generally recommended that individuals and couples discuss their divorce and bankruptcy with an experienced family law attorney. The bankruptcy matter can then be handled by a bankruptcy lawyer. This approach will likely reduce the amount of stress involved and could be helpful to the future financial health of the family.
