Should I Put Off Filing for Bankruptcy Until my Divorce is Finalized?

This is a very common question individuals considering divorce and bankruptcy ask. Financial difficulties are one of the primary reasons why American couples divorce and because of this, an individual’s bankruptcy and divorce can easily be intertwined.

There is no one-size-fits-all answer to this question, but generally, there are benefits to filing for bankruptcy before filing for divorce. If you are facing a level of personal or business debt you feel you cannot realistically repay, talk to your spouse about possibly putting the divorce on hold until after your bankruptcy case is closed.

Your Divorce Changes your Asset Pool, Income, and Debts

When you file for bankruptcy, you must submit documents that show your income, your asset pool, and your debts to the court. A big part of any divorce is the division of the couple’s marital assets. When a couple has joint debt, this too is divided in their divorce.

Consider how the property division process will change these factors for you. For some couples, bankruptcy is an effective way to eliminate marital assets and pay off joint debts to make the property division process more straightforward. Your eligibility to file for certain chapters of bankruptcy, or even to file for bankruptcy at all, can change when your divorce is finalized.

Consider Filing for Bankruptcy Jointly

In addition to eliminating marital debt before your divorce, there are other benefits to filing for bankruptcy jointly. These include:

• Doubling your exemptions. In a bankruptcy case, certain assets may be liquidated in order to repay the filer’s debts. Assets like personal property and equity in a home, up to a certain monetary value, are exempt from liquidation. By filing with a spouse, an individual can double the value of his or her exemptions;
• Filing jointly can save a couple money on court fees and other expenses, such as the cost of credit counseling; and
• By filing together, the couple can complete the bankruptcy process more quickly and efficiently, which can allow them to focus on their divorce sooner.

Scenarios Where it Could be Advantageous to File for Bankruptcy After your Divorce

Although there are advantages to filing for bankruptcy before you complete the divorce process, there are also a few scenarios where it makes more sense to reverse that order.

One of these is when your spouse refuses to cooperate with the bankruptcy filing. Another is when an individual wants to file for Chapter 7 bankruptcy, but cannot because his or her household income as a married individual disqualifies him or her. Before moving forward with your divorce or bankruptcy case, discuss all relevant facts in detail with an experienced lawyer.

Work with an Experienced Merrillville Bankruptcy Lawyer

To learn more about how to plan ahead for your bankruptcy, contact Whitten & Whitten to set up your initial consultation with an experienced bankruptcy lawyer. Our firm offers a free legal consultation to all prospective new clients, during which we can discuss your case and advise you of your rights and options.