Should You File Bankruptcy Before Or After Divorce?

Broken heart on a chain representing divorce

Divorce is usually a painful process on its own, but it can also be financially devastating for many couples. While you are trying to deal with these stresses, you may want to consider bankruptcy as a way to relieve some of the financial pressures of your marriage. For a detailed explanation, click here to know everything about bankruptcy and divorce.

The Most Important Consideration

The most important consideration in filing a chapter 7 bankruptcy is whether you have enough income to keep up with your expenses. If you don’t have enough assets to meet your living expenses and debts, you may wish to reconsider filing a chapter 7 with credit counseling before getting divorced. The same goes for those who are leaving an abusive relationship. 

Timing Of Filing Bankruptcy

Another question that may arise is the timing of filing bankruptcy. The timing of filing bankruptcy depends on the creditors you are dealing with; i.e., does your husband or wife has more debts to be paid after the divorce than before? If so, then it is probably best to file your chapter 7 bankruptcy before the divorce occurs. This ensures that you will negotiate the divorce settlement in your favor and don’t have to deal with the burden of debt after marriage.

The Disadvantages Of Filing Bankruptcy Before Divorce

Filing a petition for chapter 7 bankruptcy creates an automatic stay of all foreclosure proceedings and attachments of bank accounts and rents etc. If the divorce decree includes child support, then those obligations will not be affected by your bankruptcy filing, and you may still owe the amount to your spouse after the divorce. Also, if a chapter 7 bankruptcy is filed first and then there is another proceeding in which your spouse is involved, it may be hard to prove that you should not have to pay the debt incurred by your spouse.

Seeking Divorce After Bankruptcy Has Been Filed

If either the husband or wife is seeking a divorce after the bankruptcy case has been filed, there are issues that should be addressed prior to approving the bankruptcy discharge. First, a court for the marital action should determine whether the bankruptcy was filed in good faith and not to defeat the divorce decree or property settlement. 

Issues of abuse or domestic violence can come into play with respect to this determination. Second, if there is any question about the discharge of bankruptcy being equitable to both spouses, then the attorney for each spouse should be allowed to take part in any hearing on discharge ability. Third, the divorce court and the bankruptcy court should be notified of the hearing on discharge to allow each spouse to receive notice.

The Impact of Bankruptcy On Divorce

Most people don’t realize that the legal proceedings leading up to a bankruptcy filing can actually result in divorce. In fact, at least one out of every three marriages will end in divorce after a person has filed for bankruptcy.

The impact of divorce on financial security is difficult to quantify, but research indicates that debt and its management are major causes of domestic discord and marital instability. A recent study titled ” The New American Family,” Brad Klontz, JD and the co-founder of Financial Psychology Corporation found that higher levels of debt were directly correlated to higher rates of divorce.

Should You File Bankruptcy Before Divorce?

The answer to this question depends on your specific divorce situation. For example, if you have no significant assets with which you can secure a loan or if you would be subject to an undue hardship as a result of repaying the outstanding debts, filing bankruptcy before your divorce may be the smarter decision than waiting until after. You’ll need to consult with an attorney in order to determine which is the best option for your particular set of circumstances.

Filing bankruptcy before divorce is generally smart if you have no significant assets. Secured debts, such as your car or house, have a certain value and you can protect those items by placing them in the name of your spouse post-divorce. Make sure you’re getting an attorney that has experience with such matters and can be trusted to successfully guide you through the process so that you’re making an informed decision. 

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