How Does Bankruptcy Work During Divorce?
It can be difficult to deal with bankruptcy. Combining bankruptcy with a separation can be overwhelming. There is always a way out of these stressful situations.
What should you do first: bankruptcy or divorce? Should you file bankruptcy jointly with your spouse? Answers to these questions depend on your location, debts, property, and the type of bankruptcy that you want to file.
The two will not be handled simultaneously if you file for bankruptcy and divorce. Depending on your situation, one will be given priority. When you file both cases at once, the bankruptcy case is often put on hold until your divorce is finalized.
Should I File for Bankruptcy First?
There are situations where it is beneficial to declare bankruptcy before the ” right time”.
- Divorce proceedings divide debts. Filing for bankruptcy before divorce allows you to cancel joint debts, and utilize more exemptions. Reduce your financial burden, and simplify the divorce process. Divorce proceedings can be shorter and cheaper if you have fewer debts, property, and assets to divide.
- You may wish to file for bankruptcy first if you qualify as a couple for Chapter 7 bankruptcy. Chapter 7 can eliminate unsecured debts such as credit card debt and medical expenses. The filing for Chapter 7 takes only three to four months.
Should I File for Divorce First?
Divorce before a bankruptcy filing can help both parties qualify under Chapter 7.
- Your income must be below or equal to a state-set requirement. If you are filing as a couple, your joint income could be higher than the state’s requirement. This would disqualify you. Your income will decrease after a divorce. You may qualify for Chapter 7 if you use your income, not the income combined with your ex-spouse.
- You’ll need to wait between three and five years if you plan to file Chapter 13 bankruptcy. Couples who wish to separate legally may find that waiting this long before filing for divorce is not an option. You can then file for bankruptcy on your own after the divorce.
Joint vs Individual Petition
Couples and individuals pay the same fees for filing bankruptcy. Filing jointly may cost less than two individual filings.
Joint petitioners can also get more exemptions. In some states, you can get double exemptions on certain types of assets. You and your spouse both can protect more assets by using the exemption amounts set by your state. This is a good reason to file for bankruptcy before you get divorced.
Joint filings can discharge debts for both spouses and reduce problems when dividing assets in the future. To file jointly, you will need to be able to work together. If you and your spouse are unable to work together, then you should consider filing separately.
If you need immediate debt relief, it may be better to file bankruptcy on your own. This is especially true if your spouse does not want to do so.
This post was written by Trey Wright, a Florida Bankruptcy Lawyer! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
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