Filing for divorce is stressful, and the process can turn more arduous when accompanied by financial problems. Because parting ways with your partner can cause financial ruin, you must consider your bankruptcy options before starting the divorce process. Filing for bankruptcy before, during, or after divorce comes with a unique set of pros and cons. It is best to have a skilled bankruptcy attorney analyze your situation to obtain personalized legal advice.

Deciding to end a marriage is never an easy affair, irrespective of the reasons behind your split up. Even as you go through the emotionally draining experience of coping with the decision, you must throw in the contentious subject of debt division. If you have an insurmountable amount of debt, it is necessary to have a clear picture of how filing for bankruptcy will affect your divorce proceedings.

The Role of Debt in Divorce Property Division Proceedings

Before a divorce is finalized, one of the fundamental processes is the division of assets and debts. The court must consider property and debts brought into the marriage and those obtained during the union. Usually, each partner will remain with the assets and debts they brought into the marriage. However, marital property and debts are divided equitably under the doctrine of equitable distribution.

Note that equitable does not necessarily mean equal. A judge must consider what debt was used to finance before dividing it. For instance, if it went towards funding a gambling problem and not anything beneficial to the union, this is an aspect the court must consider.

If you are considering filing for bankruptcy while undergoing a divorce, here are six crucial facts you should know:

  • Bankruptcy is a tool that can help you enjoy financial freedom once you part ways with your partner. It is not a tool for seeking revenge on an ex-spouse.

  • You have a right to file for bankruptcy before your divorce, during the proceedings, or after.

  • You can file for bankruptcy jointly before the divorce or separately after that. Neither party has legal grounds to stop the other from filing.

  • Filing for bankruptcy separately means that the assets and debts of your partner will not be affected.

  • Chapter 7 offers the best set of pros for divorcing parties because it discharges most debts apart from spousal support, child support, student loans, and tax liabilities.

  • Chapter 13, also referred to as debt reorganization, is another option to consider if you want to keep your assets. However, this could mean working with your ex-spouse through a debt repayment plan that runs for 3 to 5 years.

Filing for bankruptcy during divorce can stop the proceeding until your bankruptcy matter is complete. The bankruptcy court will suspend your marital assets temporarily as the judge establishes your level of debt and the property you could use to settle some of the outstanding payments. However, the plaintiff in the divorce can seek an order from the bankruptcy court to allow the divorce to continue. If the order is granted, the family court can approve the dissolution of a marriage.

So what happens if you do not want to file jointly for bankruptcy?

When couples have significant marital debt, filing for bankruptcy jointly before a divorce makes excellent sense. It allows efficient completion of both processes and ensures the divorce can proceed without unnecessary delays. If only one of the parties is interested in bankruptcy, it is better to file after divorce.

The court will give each partner their share of community assets and debts during divorce proceedings. The party interested in bankruptcy can then file a case to have only their share of debts discharged. The uninterested party will still be liable for their portion of the debt. Also, they will not benefit from bankruptcy perks such as the immediate halt of calls and visits from creditors.

Whether to file for bankruptcy before or after divorce all depends on your unique situation. A competent bankruptcy lawyer can help you understand how either option will turn out for you and your partner. It is always best to seek prompt legal guidance to ensure you have the information needed to make educated decisions.

When Is the Best Time to File For Bankruptcy While Undergoing a Divorce?

California is a no-fault state, meaning that couples do not need to point out flaws in their marriage to dissolve their union. However, it is also true that money issues are a significant source of conflict for many couples. It does not come as a shocker when couples facing overwhelming debt opt for bankruptcy and prepare to dissolve their marriages simultaneously.

Filing for bankruptcy and divorce all at once is often not an ideal option. You can reduce unnecessary legal complexities by opting to file for bankruptcy before or after your divorce proceedings. You owe yourself the favor of choosing the right option that will not have a devastating impact on your financial situation, especially as you step out to rebuild your life alone.

Here are the top factors to consider when deciding when to file for bankruptcy while undergoing a divorce:

Relationship Status

The first and most crucial aspect to consider is your relationship status with your partner. If you cannot see each other eye to eye, you should opt to end your marriage and file for bankruptcy separately. On the other hand, filing for bankruptcy relief before dissolving your union is an excellent option to consider if you are on amicable terms.

The divorce then bankruptcy option is also ideal when the joint income of couples puts them over the income threshold of filing for Chapter 7 bankruptcy. Opting to first file for divorce is a brilliant idea, especially if your individual incomes are below the threshold, allowing you to file for liquidation bankruptcy.

Your relationship status is an aspect you cannot afford to underestimate. The bankruptcy process is already tough enough without the undue pressure of a hostile partner. For instance, if you cannot count on your partner to work with your attorney, show up in court or simply provide the financial documents required during the process, filing for bankruptcy before a divorce could do you more harm than good.

If you are interested in Chapter 7 bankruptcy, you cannot underestimate the importance of ensuring you are on good terms with your partner before you opt to file for bankruptcy before divorce. Note that discharging debts is a privilege and not a right. The court can refuse to remove dischargeable debts if a debtor (you or your spouse) engages in any of the following actions:

  • Perjury allied with the bankruptcy case.

  • Failure to provide tax documents as requested

  • Hiding property to defraud creditors

  • Destroying financial records or books

  • Failure to satisfy the requirement of completing a mandatory credit counseling program

In short, you want to file for bankruptcy separately after your divorce if you have reason to suspect that your partner will jeopardize your chances of enjoying maximum debt relief under Chapter 7.

It is cheaper to file for bankruptcy before your divorce because you can file jointly with your partner and use one attorney. Better still, you can protect yourself from paying joint debts, especially those linked to properties you own together.

Another key benefit of starting with bankruptcy is it will make property and debt division easier during the divorce. Be sure to consult with your attorney to understand better the personalized set of benefits this option will present. Sometimes, it is advantageous for partners to put their differences aside and work together towards a mutually beneficial arrangement.

Conflict Of Interest

There are two main types of bankruptcy ideal for divorcing couples. They include Chapter 7, liquidation and Chapter 13, debt reorganization. In some instances, each spouse has a different type of bankruptcy that best serves their interests based on their personal assets, liabilities, and income. The situation makes filing for bankruptcy after divorce the most suitable option.

Timelines

The majority of couples want nothing more than to wrap up their marriage and debts and begin life afresh within the shortest time possible. This makes it imperative to consider the time needed to file for bankruptcy, then divorce, or the other way around. One thing that is unfortunately true is that divorce proceedings can drag on for ages, especially if you have challenges with the debt and asset division process.

By filing for bankruptcy before divorce, you can make property and debt division easier for a faster process of dissolving a marriage. Most importantly, bankruptcy proceedings have well-defined timelines, unlike divorce proceedings. For instance, if you opt for Chapter 7, the bankruptcy will have eliminated all your dischargeable debts in 3 to 6 months. This allows you to permanently close one case and move on to the subsequent, the divorce.

On the other hand, Chapter 13 involves repaying your debts over 3 to 5years. This means you have better odds of having your marriage resolved faster. Because of the uncertainty involved, you should speak to your bankruptcy attorney for personalized guidance about the best course of action.

Household Income

Another aspect to consider is your household income. Remember that you must pass a means test to qualify for Chapter 7. The means test is a financial analysis that determines whether you have the “means” to settle your debts based on your monthly household income. If your joint income as a couple shows you can afford to pay your debts through a repayment plan, you do not qualify for Chapter 7.

Generally, you are eligible for Chapter 7 bankruptcy relief if your gross income for at least six months before filing for bankruptcy is below the median income in California. Financial situations can change devastatingly following a divorce. Once you are solo, the state of your finances could call for relief that only Chapter 7 can provide. If this is your reality, it is best to file for divorce before bankruptcy.

Chapter 7 Vs. Chapter 13

Chapter 7 bankruptcy offers relief through debt repayment after liquidating non-exempt assets. This option provides quick debt relief, and couples can be free of all eligible debts before they kick start the divorce process. If you pass the means test jointly and are on amicable terms with your partner, it is beneficial to consider seeking debt relief through Chapter 7 before your divorce. As aforementioned, you have to file for divorce before bankruptcy if the only way to pass the Chapter 7 means test is when you file separately.

Chapter 13 bankruptcy is yet another option couples going through a divorce can consider. However, it makes better sense to first file for divorce if you want debt relief through debt reorganization. This ensures that critical obligations like alimony and child support are considered when drafting your debt repayment plan.

Liability Concerns

The road to money problems is often packed with endless twists and turns. It could be you took a loan, and your spouse agreed to settle it. It could also be that your partner took a loan that did not go towards mutual marital interests. While the divorce court will consider these aspects during property division, creditors are not bound by divorce decrees.

Irrespective of who is assigned what debt, creditors can still come knocking on your door, even while nagging your ex-spouse. An easy way to dodge liability concerns is to wrap up your financial woes through bankruptcy before filing for divorce.

Assets

So far, filing for bankruptcy before divorce seems the most suitable choice. Even so, you must seek counsel from a bankruptcy attorney before you rush to make any decisions. Each situation is different, and you need keen deliberations, primarily if you have jointly owned assets you want to protect. Depending on the jurisdiction, the court can offer double exemption for cases filed together. The extra exemption awards increased benefits to joint filers than single filers.

Seeking personalized legal counsel ascertains that you understand your current financial situation in-depth. Better still, it ensures you know what to expect once you begin the process of filing for bankruptcy. The need to review your options in detail cannot be emphasized enough.

Cost

When making any other significant financial decision, the cost can determine whether to file for bankruptcy before or after divorce. If you file jointly before divorce, your attorney will take up the case as one, meaning you do not have to incur double costs. On the other hand, each partner will need a different lawyer when seeking bankruptcy relief after a divorce.

It is also important to note that the property division process in divorce court is bound to be more straightforward with debt out of the way. This increases the chances of enjoying an expedited process that will lower costs related to divorce attorney services.

One thing that makes divorce and bankruptcy similar is that they give individuals a chance for a fresh start. If you are looking for the freedom offered by both proceedings, seeking legal guidance ahead of time can ensure you come out stronger and ready to take on the world. Make sure you find an experienced bankruptcy attorney with a proven track record of helping couples going through a divorce.

Tips To Help You Survive Bankruptcy While Going Through A Divorce

Dealing simultaneously with marital and financial problems is overwhelming. Fortunately, there are a few tips that can ensure you complete both processes faster and come out strong and excited for the future:

File Bankruptcy Then Divorce

Filing for bankruptcy before a divorce has more pros than cons. The most notable pros include:

  • Reduced attorney fees

  • An expedited divorce process because of a clean debt file

  • Double the relief amount on exempt property

Negotiate

The best tip is to negotiate and make compromises. Filing for bankruptcy is easier and faster when spouses aim to achieve mutual benefits.

Discharge As Much Debt as Possible

The best way to protect your best interests is to discharge as much debt as possible. Whether you file jointly before a divorce or separately after that, it is better not to rely on any past promises. Reaffirming debts based on promises made by your spouse to take care of repayment will likely not work beneficially for you in the long haul.

Speak Openly With Your Bankruptcy Attorney

It can be a little tempting to tell your bankruptcy attorney only what you think they need to know. This can have a bad outcome because you will lock yourself out of receiving guidance ideal for your specific situation. If you are considering a divorce, mention this as one of the first things before filing for debt relief.

The easiest way to survive bankruptcy is to plan ahead. Planning is easier when you have all the facts on the table and can paint a picture of what your life will look like after both bankruptcy and divorce.

Find A San Diego Bankruptcy Attorney Near Me

Dealing with a failing marriage and money issues is emotionally draining. Fortunately, both divorce and bankruptcy are legal processes that can give you a fresh start. Begin your journey by seeking comprehensive legal counsel from San Diego Bankruptcy Attorney. We have extensive experience helping couples seek bankruptcy relief while undergoing a divorce. For more information about bankruptcy and divorce or to speak to a skilled attorney, please call us at 619-488-6168.