Divorce Law Issues Related to Bankruptcy
If you are planning to get a divorce and file for bankruptcy, you may have questions about which of these steps to take first. Many couples choose to file for bankruptcy before getting a divorce because this allows them to use a joint petition, which will discharge the debts of both spouses and reduce filing and legal fees. In other cases, one spouse might want to file separately if their situation is more pressing than the situation of the other spouse. This might make the timing issue irrelevant. In still other cases, a spouse might wait to file for bankruptcy until after the divorce because the reduction in their income may make it easier to pass the means test and file under Chapter 7.
If the couple already qualifies for Chapter 7, they may want to file for Chapter 7 before getting a divorce because the process usually lasts only three or four months. If they are planning to file under Chapter 13, they may want to get a divorce before going through the bankruptcy. Chapter 13 takes three to five years to complete, and the spouses may not want to wait so long for a divorce.
Division of Property and Debts
The exemptions in your state or under the federal system (if available in your state) also may play a role in whether you file for bankruptcy before or after a divorce. You can double the exemptions in some states and under the federal system if you file a joint petition. This may be an incentive to file for bankruptcy before a divorce if you have significant assets. Otherwise, you might not be able to protect as much of your property.
If your state does not allow you to double your exemptions, and you do not use the federal exemptions, you may want to file after a divorce. This will allow you to use exemptions for only the assets that you receive after the judge completes the property division process. However, if you file for bankruptcy before your divorce is complete, the automatic stay will delay the division of property in the divorce case until you complete the bankruptcy.
You should be aware that the division of debts in a divorce will not affect each spouse’s liability to a creditor. A creditor can attempt to collect a debt from the spouse who was not awarded it if the other spouse fails to pay, or even if the other spouse files for bankruptcy. You have a right to seek reimbursement from your ex-spouse for payments made on a debt awarded to them, but this can be time-consuming and expensive. To avoid this problem, the spouses may want to get their debts discharged through bankruptcy before getting a divorce.
Getting a Divorce During a Chapter 13 Bankruptcy
Many things can happen in a period of three to five years, which is the time required to complete a Chapter 13 bankruptcy. If a couple decides to get divorced during this process, they might need to deal with certain complications. For example, an attorney whom you hired for the bankruptcy might face a conflict of interest because of the divorce. You might need to choose a new attorney to continue with the process.
Determining how to divide payments under your repayment plan may be challenging if you are getting a divorce. The costs associated with a divorce and dividing the marital unit also may pose difficulties in keeping up with monthly payments. You can ask the court to reduce the payments under your plan, or you can ask to have your joint case bifurcated into two separate proceedings.
As an alternative, you may want to consider converting to Chapter 7 bankruptcy, for which you may now qualify if you did not before. This may result in the loss of important assets, so you should think carefully before taking this step.
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