Should I File for Bankruptcy Before Divorce?

When a couple is considering filing for bankruptcy, it is often a real possibility that those spouses also are considering divorce. As an article in Business Insider explains, financial difficulties, including consumer debt, often are listed as a primary cause for divorce. Yet when you are considering both personal bankruptcy and divorce, it can be difficult to know whether you should file for bankruptcy before you file for divorce, or vice versa. If you are thinking about bankruptcy and divorce, you should get in touch with an Oak Park bankruptcy lawyer as soon as possible who can help you to determine a course of action that is best suited to your individual circumstances. In the meantime, however, we want to provide you with some information that can help you to get a sense of whether filing for bankruptcy before divorce may be in your best interests.

Which Type of Bankruptcy are You Considering?
If you are planning to file for Chapter 13 bankruptcy, which is a type of reorganization bankruptcy, it is almost always in your best interest to wait until after your divorce is final to file for bankruptcy. Since Chapter 13 bankruptcy involves creating a repayment plan that lasts for a period of three to five years for most consumers, filing for Chapter 13 bankruptcy prior to your divorce would significantly complicate the process of property division, and it could mean that you are tied to your spouse for several more years.

Differently, if you are planning to file for Chapter 7 bankruptcy, it is often best to file for bankruptcy before you file for divorce (although there are some situations in which this is not the case, which we will discuss shortly). Whether you are planning to file for Chapter 7 bankruptcy individually or in a joint petition with your spouse, this type of bankruptcy—a liquidation bankruptcy—can allow you to discharge debts before property division occurs in a divorce. Discharging marital debts can make property division much easier and can allow your divorce to go more smoothly and quickly. In addition, if you are planning to file a joint petition with your spouse, you can save money by filing for bankruptcy before filing for your divorce. The filing fees for bankruptcy are the same for an individual and a married couple. Accordingly, you will only pay one fee if you file for bankruptcy before your divorce, whereas each of you will pay the filing fees if you file for Chapter 7 bankruptcy after divorce.

Are You Eligible for Chapter 7 or Chapter 13 Bankruptcy?
In some situations, even if it would make more sense to file for bankruptcy before your divorce given your particular circumstances, you may be ineligible to file for bankruptcy with your spouse. Most often, this issue arises in Chapter 7 bankruptcy. To qualify for Chapter 7 bankruptcy, a consumer (or consumers, if a joint petition) must be able to pass the “means test.” Having too much income or too many assets can result in you failing the means test and being ineligible for Chapter 7 bankruptcy. However, if you wait until after your property is divided in a divorce, both of you may then be able to pass the means test in order to be eligible to file for Chapter 7 bankruptcy.

Although it usually makes sense to file for Chapter 13 bankruptcy after a divorce, it may be necessary to do so for eligibility purposes. There are debt maximums associated with Chapter 13 bankruptcy—if you have too much debt, you are ineligible to file. When marital debt is divided in a divorce, each of the spouses may then become eligible.

Contact a Bankruptcy Lawyer in Oak Park
If you have questions about filing for bankruptcy, an Oak Park bankruptcy attorney can assist you. Contact the Emerson Law Firm today to get started on your case.



See Related Blog Posts:

How and Why to Replace Your Bankruptcy Lawyer

Consumer Bankruptcy and Foreclosure: Get the Basics

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