Should I File for Divorce or Bankruptcy First?
Sometimes, life attacks from multiple sides at once. Unfortunately, it is not terribly uncommon for those going through a divorce to find themselves facing the possibility of filing for bankruptcy protection at or around the same time. In some cases, the couple’s debt may have contributed to the decision to divorce. In others, the breakdown of the marriage and the subsequent separation may have pushed one or both spouses into a troublesome financial situation. However, depending on your unique situation, it can be difficult to determine which proceeding should happen first and how to handle both. A skilled attorney can assist you in exploring your legal options to achieve a secure financial future.
Divorce First
Depending on the situation, getting a divorce before filing for bankruptcy can be the best path for many couples. There are two different types of bankruptcy filings that are primarily used by private individuals and families, and they are referred to by the chapter in the U.S. Bankruptcy Code under which the petition is filed. Generally, Chapter 7 is used to discharge debts for individuals or couples with very few assets, while Chapter 13, also called reorganization bankruptcy, is for those with steady income and debt that it is possible to restructure.
It is possible for couples to file together, but it is also common for each person to file individually. If your divorce is finalized before you initiate bankruptcy proceedings, a Chapter 7 filing will be much more streamlined than it might be otherwise. If the divorce happens after the bankruptcy, marital assets might conceivably be sold to pay off debts during the filing, which can make a later divorce extremely difficult in terms of equitable distribution of the remaining assets. Whether you file together as a couple or as individuals can also make a difference.
Bankruptcy First
Many experts advise that if you must experience bankruptcy and divorce so close together, it is best to declare bankruptcy first. In many situations, either a Chapter 7 or Chapter 13 filing can create significant advantages—even more so if the couple files jointly. For example, a joint Chapter 7 filing can eliminate a lot of unsecured debt, which can streamline your divorce. A Chapter 13 filing, even if done before divorce proceedings begin, can act as a kind of stopgap between you and your creditors. Because a Chapter 13 filing is a reorganization, it typically comes with a budget and a repayment plan, which means that even if you are not divorced, you may still have enough money to live apart or at least spend time apart.
There are, however, rare instances where filing bankruptcy first can be problematic. Filing for Chapter 7 bankruptcy and then filing for divorce before the proceeding ends essentially creates a logjam in court – the bankruptcy proceeding freezes the person’s (or couple’s) assets, and a family court judge does not have the authority to divide marital property if assets are frozen. Other complications can also arise, so it is important to discuss your situation with a qualified legal professional.
Contact a Hudson Valley Area Bankruptcy Attorney
Both divorce law and bankruptcy law can be very confusing, but at the Law Offices of Robert S. Lewis, P.C., we have over 35 years of experience working in both areas. This means we are fully equipped to help you make the best decision based on your unique circumstances. Speak with a skilled Rockland County bankruptcy lawyer to get the guidance you need. Call us today at 845-358-7100 to schedule a free consultation.
Sources:
http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
https://www.justice.gov/ust/means-testing
https://www.experian.com/blogs/ask-experian/how-to-handle-bankruptcy-and-divorce-at-the-same-time/
