Money arguments are often cited as a leading cause of divorce, right up there with infidelity, so it is not a surprise that the issues of divorce and bankruptcy are often intertwined. This begs the question; does it make more sense to file for bankruptcy before filing for divorce or vice versa?
Advantages to Filing Bankruptcy Before Divorce
The primary advantage to filing for bankruptcy before your divorce is that bankruptcy may eliminate joint debts that would become divisible property in your divorce, simplifying your divorce property settlement and leaving you both without excess debt as you start your new lives.
It is common for each party to keep a larger portion of their assets filing bankruptcy jointly than filing separately after a divorce.
Advantages to Filing Divorce Before Bankruptcy
There are two common reasons for filing for divorce
before filing for bankruptcy:
- The two parties are not cooperative enough to navigate a joint bankruptcy
- Filing jointly would disqualify the couple from qualifying for Chapter 7 bankruptcy; filing Chapter 13 is not a viable option since the repayment plan lasts between three and five years, delaying the divorce.
What is the right choice for your situation? There is no right or wrong answer, but you need to ask yourself the following questions:
- Would our joint income disqualify us from Chapter 7 bankruptcy?
- Are we on good enough terms to file jointly and communicate throughout the process?
- Do we have considerable joint debts?
When you are ready to explore your options, an attorney can be your guide and make sure your rights and financial interests are protected every step of the way.