Divorce And Bankruptcy: Which Should Come First?

There's no doubt that money troubles and divorce go together, but deciding whether to address the money troubles or the marital discord first can be tremendously difficult when you're stuck in the middle of the situation.

Here's some practical, no-nonsense advice about how to approach the situation when debt and divorce are both looming over your head:

If You're Thinking About Filing Chapter 7

Chapter 7 bankruptcy is usually referred to as "total" bankruptcy. When you file a Chapter 7 bankruptcy petition, you essentially plead to the court that you have an inability to repay your debts in any significant way and ask that those debts be forgiven.

This is probably the most common type of bankruptcy people file, and it is a relatively short procedure. Depending on where you live (and the backlog of cases in your area), the whole process is likely to take only a few months. In this situation, there are some significant advantages to filing for bankruptcy as a couple.

First, the income limitation for a Chapter 7 bankruptcy is higher for a couple than for an individual. Filing together could help you both qualify more easily. Second, couples are entitled to roughly double the amount of "exemptions" that individuals are allowed, which means that you and your spouse can more easily keep more of your personal property (rather than turning it over for sale to repay your creditors). Finally, you and your spouse can then more easily cut financial ties with each other, especially if there are no issues involving support.

If You're Thinking About Chapter 13

A Chapter 13 bankruptcy is the kind where you work out an organized plan to repay your creditors over time. Because of the way the process works, you have to remain in bankruptcy for three to five years, until the debts are repaid, or until the trustee absolves you from the remainder. 

While you certainly can proceed with your divorce during that time, you won't be able to cut financial ties with your spouse until the bankruptcy is settled. Even if your divorce is over in a year, you could be spending the next four working with your ex-spouse to get through the bankruptcy. In that situation, it may be far wiser to divorce first and file bankruptcy after.

There are a number of complex considerations involving any decision to file bankruptcy. Bankruptcy attorney services can help you better understand the options that apply to you.

For more information, contact a law firm that offers bankruptcy attorney services.