Divorce and Bankruptcy: Which to File First

 Posted on December 00, 0000 in Bankruptcy

For many families today, divorce and bankruptcy tend to go hand-in-hand. Every situation is different, but divorce may occur as a result of financial strain, or a separation may result in economic pressure for both spouses. Regardless of what starts the struggle, both divorce and bankruptcy can be emotionally complicated. However, if you plan ahead and understand the legal issues you must address, this will help the process proceed more smoothly and result in less of a strain overall. Typically, couples choose one of two options:

Option 1: File for Bankruptcy First

Filing for bankruptcy first offers many benefits. For instance, you and your spouse can file for bankruptcy jointly, which saves money and may increase the number of exemptions you are allowed to take. Additionally, if one spouse is the sole breadwinner of the household, you have a higher likelihood of qualifying for Chapter 7 bankruptcy, which eliminates most unsecured debts, will help you get out of high car payments, and can reduce the fight over finances during divorce.

Once the bankruptcy process is complete, most of the concerns about a couple’s debts and assets will have been settled, making the process of property division easier. If you choose to file for bankruptcy after divorce, not only must you reach an agreement regarding debts and assets, but creditors may still attempt to collect on any joint debts, which can result in further contention between ex-spouses. Also, one spouse may choose not to file for bankruptcy, thus creating a situation with a non-dischargeable obligation owed to the other spouse.

Option 2: File for Divorce First

In other situations, it does not make much sense to file for bankruptcy first. Perhaps you and your spouse are unable to communicate with each other to determine how to liquidate your assets. Maybe you did not qualify for Chapter 7 bankruptcy, which frequently leaves Chapter 13 as the only option, requiring that both spouses follow through with a payment plan for three to five years. If either side does not follow this plan, the bankruptcy case will be dismissed. Additionally, due to the pending payment plan of a Chapter 13 bankruptcy, you may not divide any assets until the completion of this plan. Finally, if one spouse will be paying child support or spousal maintenance, it is often beneficial to complete divorce proceedings first to have an accurate understanding of the financial situation after the divorce. For example, a requirement to make regular support payments may make it impossible to continue with a bankruptcy payment plan.

Work With a Skilled Bankruptcy and Family Law Attorney

Every family’s situation is unique. At the Thomas Law Office, our McHenry County divorce and bankruptcy attorney will thoroughly analyze your situation and help you determine the best order to complete these processes. We have experience guiding clients to success in both divorce and bankruptcy, and we can provide you with the legal help you need during this trying time. Call us today at 847-426-7990 to schedule a consultation.

Sources:

http://www.uscourts.gov/services-forms/bankruptcy

http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2086