Bankruptcy and Divorce 5 Key Questions
You and you spouse have decided to call it quits. Compounding your marital problems are your financial problems. Creditors are hounding you, wages are being garnished, your bank accounts seized, it is time to act. But what comes first, bankruptcy or divorce?
The answer depends on a few key questions:
- Will one or both of you be filing? – After determining the answers to the next three questions a bankruptcy attorney will be able to assist you with making this decision, but keep in mind that once the attorney knows that a divorce is imminent, he or she may require one of you to hire a different attorney to avoid a conflict of interest.
- What are your individual and combined incomes? – Prior to the divorce filing, the means test will take into account both of your incomes and the size of you married household. If only one of you is filing for bankruptcy, it may be better to wait until after the divorce. Again these are complicated issues and it is important that you be completely honest with your lawyer.
- What debts are joint and what debts are individual? – If only one of you has incurred a large amount of debt, such as when a business failure has left one spouse with large debts, it may be preferable to wait until after the divorce for that spouse to file individually. Also, keep in mind that you can’t BK out of child support or alimony. However, if you are behind on these support payments a Chapter 13 filing will help you with reorganizing and eventually discharging the past due amounts.
- What assets are joint and what assets are individual? – A bankruptcy filing will stop the division of property, so it is important to determine the disposition on non-exempt assets prior to a Chapter 7 filing. In addition, spousal and child support determinations will not be stayed by a bankruptcy filing.
There is one more question and it’s a good one,
5. Is the divorce amicable? – Successful bankruptcy outcomes are more likely when both spouses work together for the benefit of both parties. Of course, sometimes this is easier said than done!
The interrelated nature of these proceedings makes it essential that you seek legal counsel before taking any action. Your situation is unique, be sure to protect yourself – we can help!