Does Divorce Increase Your Chances of Filing Bankruptcy?

TRI Writer • May 11, 2020

Is there a connection between divorce and bankruptcy? Does divorce make bankruptcy more or less likely? Which comes first: bankruptcy or divorce? Divorce or bankruptcy? If you are considering filing for bankruptcy and divorce, the timing can be vital.

How Do Divorce and Bankruptcy Affect Each Other?

In most cases, bankruptcy takes precedence over a divorce. So, if you file bankruptcy during divorce , it can delay the division of property until the bankruptcy is complete. The divorce will essentially be put on hold until the bankruptcy case is finished. Considering this, you cannot really “do” both divorce and bankruptcy at the same time. Since debts are associated with an individual’s name or social security number, it can affect how the debts are handled in the divorce. The bankruptcy court also treats income differently based on the filer’s status upon filing: married, separated, or divorced.

Does It Make More Sense to File Bankruptcy Before or After Divorce?

If a divorcing couple is on good terms, they may want to consider filing bankruptcy before the divorce. Filing jointly means all debt is addressed in one bankruptcy case with joint debts wiped out together. It may also mean bankruptcy exemption amounts are higher due to the “joint” filing. Filing bankruptcy before divorce may also be helpful if one spouse makes all the money in the marriage as it will increase the chances of qualifying for Chapter 7 bankruptcy. Filing bankruptcy before divorce is also a good idea if there are financial obligations/loans that neither party wants to be responsible for, such as car loans, mortgages on houses that are underwater, etc.

Removing Debt from the Divorce Process Can Expedite the Process:

If you qualify for Chapter 7 bankruptcy, the process of filing and receiving a discharge of debt should be completed in a few months. If a couple files Chapter 7 bankruptcy before their divorce, unsecured debt can be eliminated. Receiving a discharge of debt before filing divorce can greatly benefit couples because it removes the fight over who is responsible for the debt. The division of property during divorce includes all assets and liabilities (including debt). The division of debt is one of the areas of divorce most likely to get contentious, so removing it entirely or removing a large portion of it before filing, might be a good idea.

When is Filing Divorce Before Bankruptcy a Good Idea?

If a couple’s joint income is too high to qualify for Chapter 7 bankruptcy, it may make sense to file after divorce. If you make significantly less than your spouse, you may be eligible to file Chapter 7 bankruptcy on your own after the divorce. And in some cases, both spouses may qualify for Chapter 7 bankruptcy after divorce. Completing the divorce first, before filing bankruptcy also means that any child support payments or spousal support payments are considered.

If you are buried in debt and facing a divorce, we can help. Trust the experienced Tennessee and Georgia bankruptcy attorneys at Kenneth C. Rannick P.C. to help you determine your best options. We help good people through bad times every day, and we can help you, too.

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