As if going through a divorce isn’t stressful enough, adding financial struggles on top of it is enough to send anyone into a panic.
But if you find yourself going through this, don’t worry, you’re not alone. In fact, divorce is one of the top reasons individuals find themselves going bankrupt.
Before making any major decisions concerning your divorce and bankruptcy, there are several different factors to consider that can help you determine the most beneficial path to take.

Chapter 7 vs. Chapter 13 Bankruptcy

One of the first steps when filing bankruptcy is determining what type works best for your situation.
Chapter 7, or the “Liquidation Bankruptcy”, will give you immediate debt relief by eliminating all of your unsecured debts. This process usually only lasts between three to six months.
This is good for those looking to get a quick divorce. You can jointly file for bankruptcy with your spouse, then file for a divorce afterward without waiting too long.
On the other hand, a Chapter 13 bankruptcy allows you to keep all of your non-exempt property, but the process lasts between three and five years. During this time you will take part in a debt repayment plan, which means working with your soon to be ex-spouse, delaying a divorce.

Splitting Up Assets

Filing for divorce and bankruptcy at the same time will complicate the process of asset division.
Whether you file for Chapter 7 or Chapter 13 bankruptcy, your assets and property are frozen. This is so the court can sort through everything and determine what will contribute to your owed debt.
This hold, or “automatic stay“, on your assets means property division is impossible to complete until the bankruptcy proceedings are complete, therefore dragging out your divorce.
Filing for bankruptcy first can simplify the property division in a divorce case, which in turn lowers your divorce cost.
Whether you choose to file for divorce or bankruptcy first will be determined case-to-case, but just know that doing both at the same time will inevitably lead to complications.

Household Income

You and your spouse’s income will help you decide whether to file for divorce or bankruptcy first. If you have a fairly sound relationship, then filing for bankruptcy first can be financially beneficial to you both.
When going bankrupt, the filing fees for joint and individual will be the same. If you file with your spouse, you can split the cost of these court fees, as well as the cost of hiring an attorney.
On top of splitting court and attorney fees, filing jointly could mean you double your amount of exemptions. This means you could end up keeping more property than you would’ve if you filed for bankruptcy individually.
These exemption laws vary by state, so you should consult with your bankruptcy attorney to determine if a joint filing would benefit you.
But keep in mind that while filing jointly for bankruptcy can save you money on fees, it also affects what type of bankruptcy you qualify for.
If you intend to file for Chapter 7 bankruptcy, you have to pass a Means Test. If your joint income is too high, you won’t qualify. This is true even if one of you has a low enough income to qualify, in which case it might be more beneficial to file for Chapter 7 individually post-divorce.

Navigating Divorce While Going Bankrupt

While bankruptcy and divorce are both stressful situations, they can be handled if you are informed of all of your options, and make decisions that best suit your needs.
Your assets, your income, and your relationship status with your spouse will all play a major part in determining what type of bankruptcy to file, and whether you should do it before or after your divorce.
If you are ready to seek professional help with your bankruptcy, contact one of our experienced lawyers to help you get the fresh start that works best for you.