Divorce and Bankruptcy: Which Should Come First?

Financial problems and the stress they generate are often directly tied to a couple deciding to get divorced. If you face bankruptcy and divorce, you may be wondering where to begin. The answer depends on several factors unique to your marriage, your finances, and your goals for the future.

Reasons to File Bankruptcy Before Getting Divorced

Divorcing couples can often file a joint bankruptcy while they are still legally married. If the spouses can effectively and amicably work together with one attorney, a joint filing saves on court filing fees and attorneys’ fees. .

The primary advantage of filing for bankruptcy before getting divorced is that it makes the divorce less complicated. Instead of dividing up debts in the divorce that neither party is likely to be able to afford to pay after the divorce, the debts are instead addressed in the bankruptcy. Spouses that file a joint bankruptcy may also be able to protect more of their assets from creditors than they could if they filed individual bankruptcies. .

Reasons to Get Divorced Before Bankruptcy

Sometimes couples are unable to amicably work together to file a joint bankruptcy and decide to file separately after divorce. In other circumstances, the combined income of the couple would prohibit them from filing a Chapter 7 bankruptcy and would only make them eligible for a Chapter 13 repayment plan that could last up to five years. In that circumstance, spouses may decide to wait to file separate bankruptcies after divorce to see if their individual income will make them eligible to file a Chapter 7 bankruptcy which does not require a repayment plan.   

There is a financial reason many couples choose to get divorced before filing for bankruptcy. Chapter 7 – liquidation bankruptcy – is only available to individuals or couples who can pass the Chapter 7 means test. If your income as a couple is too high to qualify for Chapter 7, getting a divorce first may result in your income being low enough to qualify. Chapter 7 is more attractive than the alternative of going through Chapter 13 and having to wait out the three to five-year repayment plan before initiating divorce proceedings.

What’s the correct order for you? An experienced lawyer from our firm can help you identify your options and ensure you are on the path to a brighter future.