Couples often deal with money issues during marriage, so it is not surprising that financial difficulties follow them into divorce. When debts become too much to bear, bankruptcy is a common (and legitimate) question that divorcees may have to answer.
But what should happen first…divorce or bankruptcy? The best answer is: it depends on the situation, but couples considering divorce should consider the following logistical issues:
What type of debt must be resolved – If many of the debts are jointly held, chances are that the bankruptcy would come first. Dividing joint debts during divorce, and then filing for bankruptcy could be a complicated (and expensive) exercise. A court order does not sever a party’s responsibility for paying a joint debt, and a post-divorce bankruptcy on a joint debt will likely affect your credit report.
What type of bankruptcy – If you are seeking a Chapter 7 bankruptcy, all joint and individual debts can be discharged in one petition. This, in turn, will make the divorce settlement easier as no lingering debts will hinder the proceedings. Also, it is unlikely that parties will maintain a Chapter 13 plan while living separately after divorce.
Other financial obligations – Potential child support obligations will not be affected by bankruptcy. These payments are considered priority payments that must be honored.
Exemptions – Filing after divorce will limit the amount of exemptions you will be entitled to. Filing while married will likely double these exemptions and allow you to keep certain property.
While these are a few considerations involving bankruptcy and divorce, it would be prudent to review your situation with an experienced bankruptcy attorney before initiating a divorce.
Source: Bankruptcy Law Network, Bankruptcy and Divorce
Read this article:
What to do first, file bankruptcy or divorce?