Bankrupcty & Divorce

All too often money problems lead to divorce.  So it’s normal that a bankruptcy (or two) will be part of the picture.

Should you file bankruptcy first, or wait until the divorce is filed or concluded?  A good question.  The answer depends entirely on where you live and what issues need to be resolved.

A married couple, even if they aren’t living together, can file  together.  After the divorce, they can no longer do that, so two cases might need to be filed. Thus, you can save a filing fee if you file before the divorce. But, and this is a big but, you can’t expect to maintain a Chapter 13 bankruptcy if you are divorced.  So, it’s best to talk to a competent bankruptcy attorney and be completely honest about the domestic situation before filing.  And, you might find that the attorney, upon learning that a split up is imminent, won’t represent both of you, because of the potential conflict of interest.

Additionally, if you are still living together, the income of both spouses, at least to some extent, will need to be included in the calculation of the means test to determine if a Chapter 7  is a viable alternative. So, if the combined income is too much, it might be better to wait until you have separated before filing.

Generally, there are three things that get sorted out in a divorce: property division; child custody; and spousal and child support.   The automatic stay in bankruptcy will stop any property division but won’t stop the determination of child custody or the payment of  support.  Thus, if you file for bankruptcy before the property is fully divided up, that process will go on hold for a while.  Since the determination of property rights includes the payment of debts, the bankruptcy will often help resolve some of those issues.

If your marriage is breaking up, it might be nice to clean up your debts too and get a true fresh start.