Should I File for Divorce or Bankruptcy?

Money is easily one of the biggest causes for divorce as finances can make or break a marriage.

It should not be surprising that divorce and bankruptcy are often connected. One either precedes the other or shortly follows.

Many couples wonder if they should wait to file for bankruptcy together before going towards divorce, or if they should go the other way around. How do you know?

Efficiency and Saving Money

For many couples, it comes down to efficiency and saving on costs.

Anytime a legal case is filed, a filing fee is associated. Whichever spouses chooses to file for divorce will be the one bearing the cost of the divorce proceedings.

If the spouses decide to do bankruptcy separately, each of them will be pay their own respective fees and for their own attorneys for the bankruptcy case. However, if they file together, they will be saving costs on both ends.

The spouses can have one bankruptcy attorney and only pay one bankruptcy filing fee. They can bear that cost together instead of paying separately. The only caveat for this idea is that the attorney the spouses use together for the bankruptcy will then not be able to represent either of the parties for the divorce.

A conflict of interest is created when the bankruptcy attorney represents both parties. Therefore, the two will need to weigh the pros and cons of going it alone with respect to legal counsel.

Simplifying the Process

With divorce, all of the assets and debts of the marriage are taken together and divided up equitably. In most states, this means that the assets and debts are divided equally, unless one party has more ability to pay than the other.

However, if the spouses have more debt than assets and are facing difficult circumstances with the ability to pay these debts back, matters can be complicated. It can be beneficial for parties to proceed with bankruptcy first so that these debts do not need to be divided later.

Most of the marital assets and debts will already be dealt with. Any assets or debts that are not used to pay off non-dis-chargeable debts or are not discharged will be then divided in the divorce decree. Not only will this make the process easier, it will also save on the legal fees divorce attorneys would spend in trying to divide the marital estate.

Chapter 7 of Chapter 13?

Two different bankruptcy types are available from which to choose.

Chapter 7 bankruptcy is a liquidation bankruptcy which takes all dis-chargeable assets and debts and liquidates them. This type of bankruptcy is normally used with discharging unsecured debts, including credit cards and medical debts. The Chapter 7 process normally is completed in a few months and is often preferable to married couples who are wanting to get divorced quickly.

On the other hand, Chapter 13 bankruptcy is a longer process and involves a repayment plan for most of the debts involved. Chapter 13 can take three to five years for the process to be complete and is often the best choice for an individual filing, over a couple.

Advice Regarding Chapter 7 Bankruptcy

However, if the married couple wants to proceed towards Chapter 7, they should be made aware of income qualifications for filing under this specific chapter.

An income level is set filing under Chapter 7. Therefore, if spouses want to file jointly, both incomes need to be taken into consideration.

If the two incomes combined are too high, they may not be qualified. Therefore, the spouse may have to divide up their assets and debts according to what would allow each to file for bankruptcy separately and still qualify for income purposes.

A bankruptcy attorney should be able to advice the couple on how to properly divide the debts up in the divorce settlement agreement and have the spouse who would qualify for Chapter 7 assume the debts to discharge through liquidation bankruptcy. In fact, many married couples craft settlement agreements with this idea in mind.

One consideration is whether each spouse will properly handle his or her respectively assigned debts once the divorce is finalized. It may be important to include certain language to protect the other spouse from this possibility.

Contact Us Today

It can be tough to make the decision between divorce and bankruptcy. If you need assistance, Collins & Arnove can help you.

To learn more, call 972-516-4255 for a free consultation or visit us online.