Couples facing either divorce or bankruptcy may feel overwhelmed, but if you are considering filing for both of these life-changing events at once you may need some help. You should know that the order does matter in most cases, and knowing how to proceed can save you a lot of time and stress in the future. Read on for a better understanding of how to proceed with these two major legal actions.
Chapter 13 or Chapter 7?
It's important to know what type of bankruptcy you will be filing, since these two major types are vastly different. Chapter 13 is really more of an organizational plan to repay your debts, and can take years and years to be complete. Due to the amount of time chapter 13 bankruptcy requires, it may be best to file once your divorce is final. Part of divorce will involve the division of debt, and your repayment plan will be based on the debt you have left after the marital division. A chapter 7 bankruptcy, however, can be completed in a matter of a few months. The American Bar Association offers other comparisons for each type of bankruptcy filing.
Filing Chapter 7 Prior to Divorce
Since the issue of debt can be a contentious one in divorce, a bankruptcy filing that can eliminate all or most of that debt could result in a smoother divorce process. Credit card debt often makes up a large proportion of marital debt, and this is the very type of debt that can normally be discharged with a chapter 7 filing. It should be noted that you cannot use a chapter 7 bankruptcy filing to discharge student loan debt or taxes owed.
The Property Issue
Another good reason to get your chapter 7 filing complete before you divorce has to do with the issue of bankruptcy exemptions. Exemptions allow filers to keep a certain dollar amount of real estate, vehicles and personal belongings. In some states, married filers who file jointly are allowed to double their exemptions, which could potentially allow them to keep more of their property.
Waiting Till After the Divorce
A bankruptcy filing is meant to give debt relief for those who do not have enough income to pay off their debts, so filers must pass the so-called "means test" prior to filing. This means that if your income exceeds the median income of your particular state, you may be barred from filing. Since your income is likely to be much lower after you divorce, it may be better to wait and file post-divorce.
Both of these legal actions can be confusing and complicated, so consult with both a divorce and bankruptcy attorney for information before you make a move.