Do Bankruptcy and Divorce Mix?

Divorce is a great time to reassess your life’s priorities. It’s also an excellent time to take stock of your financial health. After divorce, many single people are shocked at how much it costs to live on their own. Creating a budget before divorce is a great way to take control of the situation so you don’t end up homeless or deeper in debt.

What role, if any, can bankruptcy play in your financial planning? In a Chapter 7 bankruptcy, for example, debtors can quickly eliminate certain debts in a few months. That could immediately free up cash for use to pay for rent or other expenses.

ContactResolve Law Firm. Each person’s situation is different, and what works for one person might not work for you. You should meet with a seasoned San Diego bankruptcy attorney to review whether now is the time to file for bankruptcy protection and eliminate burdensome debts. Below, we identify how bankruptcy and divorce can complement each other—or conflict.

Should You File Jointly?

Married couples may file for bankruptcy jointly. It’s helpful to do so because you might have joint debts, like joint credit cards where each spouse is listed as a debtor. Once you are divorced, you must file separately.

When it comes to divorce and bankruptcy, the real issue is usually one of timing: is it better to file for bankruptcy before filing for divorce or after?

Why You Should File Before Divorce

It sometimes makes sense for married couples to file for bankruptcy before filing for divorce:

• You can eliminate unsecured debts, which means you won’t have to divide them after divorce. It’s much easier to hit the ground running when you don’t have thousands of dollars of debt hanging around your neck.
• You can double most bankruptcy exemptions while married. In a Chapter 7, the trustee can take or sell any non-exempt property. By doubling your exemptions, you will lose fewer assets at the end of the bankruptcy process.
• You and your spouse will only have to pay one filing fee. You can also split legal fees.

Be realistic about these advantages, however. You can’t eliminate all debts in a Chapter 7. For example, you won’t be able to eliminate child support or spousal support payments. You also can’t eliminate a secured debt, like your home mortgage, without giving up the asset which secures the loan.

Why You Should Wait to File Until After Divorce

There are some advantages to waiting to file until you complete your divorce: 

• Your combined marital income might be so high you can’t pass the Chapter 7 means test. The easiest way to pass is to compare your income to the state’s median for a family of your size. You might qualify after divorce when counting only your own income.
• The bankruptcy will delay a divorce. When a person or couple files for bankruptcy, all their assets become part of the bankruptcy estate. You can’t do anything with these assets, like divide them, until you complete bankruptcy. As a result, filing before or during divorce can slow down the divorce process.
• You don’t communicate or work well with your spouse. Then it might be time to wait until you are single and handling your bankruptcy solo.
• Your credit score will take a hit and you need to rent an apartment. Most landlords pull a credit history before approving a rental application. If you file before divorce, then your score could tank, costing you an apartment.

These are some of the most important reasons to wait. Call Resolve Law Firm to discuss your situation. We need to hear more about your specific case to help determine when the right time is to file.

Remember, you file for divorce in California court, but you file for bankruptcy in federal court. Our firm can handle the bankruptcy side of things if you decide to seek bankruptcy protection.

Can You File for Chapter 13 Bankruptcy Before Divorce?

This is not a good option. AChapter 13 is helpful because you won’t lose non-exempt property (provided you complete the bankruptcy). However, it takes 3-5 years to go through the entire process. You don’t want to delay your divorce for that amount of time.

Chapter 7 is the right option for many people. We can discuss if it’s sensible to divorce and then file for Chapter 13 bankruptcy, which could work.

So…When Should You File for Bankruptcy?

As you can probably guess, there is no time that works right for everybody. Instead, we need to know more about your situation, including:

• Your income, as well as your spouse’s income. You might make too much to file jointly for Chapter 7 protection.
• The community debts you and your spouse incurred while married. Do you have joint credit cards? Mortgage? Medical debt?
• What property you own, including whether you can exempt the property from the bankruptcy trustee.
• Whether your home is in foreclosure and you want to stop the process immediately.
• Where you are in the divorce process. Have you already filed? Does your spouse know you intend to file for divorce?

One reason to work with a seasoned San Diego bankruptcy lawyer is that you don’t want to choose to file at the wrong time or choose Chapter 13 when Chapter 7 is the better option. Too many people without lawyers are frustrated when their bankruptcy is dismissed, or they end up harming themselves financially.

Schedule a Free Consultation with Our Firm Today!

Resolve Law Firm is proud to help distressed consumers seek a fresh start financially. Bankruptcy law is what we do, and we know how to maximize the amount of debt eliminated in the process. Many people are eager to finally get divorced so they can be free of their spouse. Still, you need to approach divorce and bankruptcy in a thoughtful, deliberate manner and make a decision which sets you up for success moving forward. Our San Diego bankruptcy lawyer is available to assist. Call to schedule a free consultation with our law office.