There are many issues for a couple to consider when seeking a divorce. One of them may be to take a look at their assets and decide if it may be a better idea to declare bankruptcy before filing for divorce; it has happened in amicable divorces many times.
A bitter divorce may lead one of the spouses to threaten the other with a bankruptcy filing to reduce the amount of alimony and support. That will not happen as child support and alimony are considered non-dischargeable in bankruptcy proceedings. This move may only cause more trouble for the one filing for bankruptcy than they had bargained for – and it certainly won’t help the divorce proceedings either.
Bankruptcy filing
The three most common types of bankruptcy filings are Chapter 7, chapter 11, and chapter 13. Chapter 7 usually takes the shortest amount of time, usually about six months. In Chapter 7 filings, the debts are looked at and a trustee is appointed. The filing automatically stays (stops) most collection actions against the filer and their property. Within a short period of time, the debtor must meet with their creditors - and if a married couple has filed jointly, they both must attend this meeting. The purpose of this meeting and collection of all the debtor’s assets is to establish an estate that will be liquidated to pay off as much of the debt as possible.
In this case, it has to be determined that - if the couple is to be divorced - filing for a chapter 7 bankruptcy before making the divorce motion is the best way to proceed. If they jointly own property, the liquidation process will discharge their joint debt as well. In other cases, if the person filing for Chapter 7 does so after a divorce discharged their unsecured debt, the creditor may go after the other spouse for repayment because they had jointly shared in the original debt. This is a huge factor to consider when a couple contemplating divorce is thinking of declaring bankruptcy.
Chapter 13 bankruptcy will take longer as assets are looked at very closely and the debt will be repaid over time, within three to five years. The debt may be paid at a reduced rate, and it will take a longer time to discharge this type of bankruptcy.
Another factor to consider when deciding if the divorce should be filed before or after the bankruptcy is filed revolves around timing. If the bankruptcy filing precedes the divorce, it may delay the divorce proceedings. This is because the family court will need an accurate listing of what assets will be available for allocation between the divorcing parties. In a chapter 13 filing, that information will take longer to acquire.
Filing Separately or Jointly
Besides deciding on which process is best to file first - divorce or bankruptcy - it also should be decided on whether bankruptcy should be filed jointly or separately. If the couple files jointly for a chapter 7 bankruptcy, the request could potentially be denied. The combined income of the household may make a chapter 7 impossible as the income level may go over the figure established in the “means test” as proof that chapter 7 is a viable option.
There are many other areas of both bankruptcy and divorce law that can have an impact on both when and how to file for bankruptcy. This is why contacting an attorney with knowledge of both divorce and bankruptcy is key for the best possible outcome for all involved. Contact the offices of Esteves-Pazos Law Firm today and let an experienced family law attorney work to ensure that you make the best possible decision for your case. We have handled issues of bankruptcy and divorce in the past and we know what works.
