When Is the Right Time to File for Bankruptcy when Divorce Is Involved?
Divorce commonly leads many people to decide to file for bankruptcy. Many financial problems will lead a couple to file for divorce. However, it is important to plan out how to make both bankruptcy and divorce less expensive and complicated.
Deciding if you should file for bankruptcy prior to, or after, your divorce will depend on a number of factors, including the state you live in, the amount of property you own, how much debt you have, and the chapter of bankruptcy you are seeking. In this blog, we discuss the considerations for whether you should file for bankruptcy before or after you decide to get a divorce.
A bankruptcy case begins once you file your official bankruptcy documents with the court. If spouses are filing for bankruptcy together, they will file a “joint petition” that contains both of their financial information. Sometimes it is better to file together because the bankruptcy will eliminate the qualifying debts for both spouses. Not only is it cheaper to file a joint petition, but it can also help reduce issues that need to be disputed during the divorce proceedings.
Married couples do not have to file together. If they choose to, spouses can file for bankruptcy on their own, if it will benefit them to do so.
Chapter 7 & Chapter 13 Bankruptcy
Chapter 7 bankruptcy, also called liquidation, can help you eliminate unsecured debts like credit card debt and medical bills. It also can discharge secured debts like a mortgage. Chapter 7 can be resolved fairly fast, so this option might benefit you if you want to file for bankruptcy before your divorce. However, many times when alimony or equitable distribution of property is at issue, the court will consider the relative debt of each party. In such a case, depending on your position in the divorce, it may be beneficial to wait until after the divorce is final to file.
To better understand this concept, you should discuss this with both your family law attorney and bankruptcy attorney. Some law firms, such as Richard A. Heller, P.A. have different attorneys that practice in both areas of law.
In contrast, Chapter 13 bankruptcies can take between 3 to 5 years to complete. This is because your debts will need to be paid through a repayment plan, with any balance of dischargeable debt being discharged at the end. Due to the length of time to complete a Chapter 13, it is usually a good idea to file for this bankruptcy separate from your spouse.
Again, there may be an advantage of waiting, since some obligations for equitable distribution of debt may be dischargeable. However, if you file Chapter 13 first, you may alert the other party or the court to this issue.
Deciding to use Chapter 7 comes down to the income of a single household. When you file jointly, you have to include your combined income in the bankruptcy documents. Households with high income might not pass the Chapter 7 means test, which will disqualify them from a Chapter 7 bankruptcy. In some cases, it might better to wait until each spouse is separated before filing for bankruptcy.
Talk to a Bankruptcy Lawyer Today
At Richard A. Heller, P.A., our bankruptcy team is equipped to take on most any consumer bankruptcy case and business Chapter 7. We are dedicated to helping you protect your assets and legal rights. Let us put our skills and experience to work for you.
Contact our Orlando bankruptcy attorneys online or call (407) 501-4052 to discuss your case today.