Financial problems and divergent attitudes about money are among the leading causes of marital discord. In fact, money issues are behind almost a quarter of all divorces. Therefore, it's not uncommon for couples to reach a point where they're facing bankruptcy and divorce at the same time.
A key issue in most divorces is how to divide debt, particularly if it was acquired during the marriage. Since you're facing significant debt, you'll need to determine whether it's best to file for divorce or bankruptcy first. That depends on factors like your income level, how much property you own and how much you're willing to spend on the bankruptcy.
Divorce Before Bankruptcy
If you file for Chapter 7 bankruptcy, your income must be below a designated level. If both spouses work, your combined income may be too high to qualify. Therefore, you may want to finalize the divorce first.
Of course, you'll want to spell out in the divorce how the subsequent bankruptcy (or bankruptcies) will be handled. If the debt was primarily racked up by one spouse, he or she may be the only one who needs to file. In community property states, however, debt acquired during the marriage is the equal responsibility of both spouses. It's best to get advice from both a bankruptcy and family law attorney since these are two very different areas of law.
Bankruptcy Before Divorce
If you can hang in there together for awhile, filing for bankruptcy as a married couple is the most cost-effective choice. The bankruptcy fees are the same whether you file jointly or individually. Therefore, one joint bankruptcy costs half of what two individual filings would, both in bankruptcy and attorney fees. Let your bankruptcy attorney know that you will be divorcing after the bankruptcy is settled.
By filing jointly, you'll also be allowed more exemptions. These are the assets that you can keep from being liquidated to pay your debts. In some states, married couples are allowed to keep twice the property they could in an individual filing. If you have a good deal of property that you don't want to lose, you may find it beneficial to file jointly. You should find out from your bankruptcy attorney what the difference in exemption allowances would be.
Even if you file for bankruptcy with your spouse jointly using one bankruptcy attorney, it's essential to have your own family law attorney to represent you in the divorce. Whether you go through the bankruptcy first or wait until after the divorce, make sure that this attorney is fully informed about the bankruptcy so that he or she can provide appropriate guidance before and during the divorce.
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