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Should you file for bankruptcy before your divorce?

If you and your spouse agree that the best course of action for your relationship is divorce, then prepare your wallet for the accompanying financial obstacles. Divorces can be as expensive as the two parties allow them to be. If you think some of the issues on the table may run up the legal fees and court costs, your divorce may make it impossible to meet your debt obligations. (Remember, no matter who holds the credit cards and loans, debt is also considered marital "property" and will be equitably divided among both spouses.) Filing for bankruptcy may be the right option before you file for divorce. 

Filing a joint petition

If you and your spouse are on amicable terms going into the divorce process, then filing jointly for bankruptcy may be your best option. Together, you and your spouse will file a "joint petition", a document that states both spouse's financial information. Not only is filing jointly more efficient, but it will also wipe out any qualifying debt between both spouses, lessening issues in court. If you qualify for Chapter 7 bankruptcy, these following debts will be eliminated:

  • Personal loans

  • Credit card debt

  • Executory contract, like a car lease

  • Overdue utility bills

Filing jointly is also cheaper than filing separately.

Types of bankruptcy

There are two different kinds of bankruptcy you will need to choose between: Chapter 7 and Chapter 13. Filing for a Chapter 7 bankruptcy will give you a clean slate and fresh start by paying off all of your qualifying debt. Chapter 13 bankruptcy allows you to resolve all of your debt within three to five years. Both of these carry their own individual pros and cons, but if you plan on settling your divorce quickly, Chapter 7 bankruptcy is your best option. As long as you have a Chapter 13 bankruptcy open (the repaying of your debt), settling your divorce may be more complicated.

Chapter 7 income qualification

If you and your spouse settle on filing jointly under Chapter 7 bankruptcy, then you'll need to take a look at the income cap for your state to see if you actually qualify. If your incomes combined are too high for you to qualify, then it might be in your best interest to file for bankruptcy after your divorce is official and each spouse has their own separate household.

Debts not included in bankruptcy

Some couples think that declaring bankruptcy is the cure all for every debt they owe. Unfortunately, not all debts can be eliminated. Types of non-qualifying debts include:

  • Court fines or penalties

  • Child support

  • Alimony

  • Student loans

Intermixing bankruptcy with divorce can be complicated. If you have any questions, or hesitations, seek the assistance of an attorney who has experience with both bankruptcy and family law.

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