Money problems are a common source of tension and arguments in a marriage. Financial problems can be one of the factors in a couple’s decision to divorce. Depending on the situation, one or both spouses may need to file bankruptcy to deal with the debt problems. However, which comes first, the divorce or the bankruptcy filing?
Filing Two Legal Proceedings Simultaneously
It can be difficult to handle one legal proceeding at a time, much less simultaneous legal proceedings. Trying to file a bankruptcy case during a divorce proceeding can be overwhelming. Furthermore, the cases could impact each other in negative ways. It is usually best to file for bankruptcy either before filing for divorce or after the divorce is final.
If you believe that you may need to file bankruptcy, you need to retain an experienced Peoria bankruptcy lawyer and an experienced divorce attorney. With your consent, your attorneys can consult with each other about the various issues or problems that could arise if you have a bankruptcy case and a divorce proceeding pending at the same time.
Working together, your lawyers can determine what is in your best interest, including whether you and your spouse may want to consider filing a bankruptcy case before your divorce proceeding.
Benefits of Filing Bankruptcy Before a Divorce Proceeding
There are some cases in which filing a bankruptcy action as a couple can make your divorce case easier. A couple may also benefit from filing a joint bankruptcy case.
The benefits of filing a joint Chapter 7 bankruptcy case before filing a divorce action include:
- Couples split the cost of the attorneys’ fees and filing fees instead of paying two separate fees.
- Couples split the cost of the bankruptcy courses instead of paying for separate courses.
- Spouses are entitled to double many of the Arizona bankruptcy exemptions, which means they can protect more equity in assets than they could by filing alone.
- Discharge most, if not all, unsecured debts, which can simplify the debt and property division issues in the divorce case.
- Surrender a home that neither party wants or that is worth less than is owed on the loan without the fear of a foreclosure or deficiency judgment.
- Get rid of debts that neither of the parties can afford to pay on a single income.
There are some things to consider before rushing into filing Chapter 7 before a divorce. When filing a joint Chapter 7 case, both spouses’ incomes are included in the Means Test to determine if the couple meets the income requirements for a Chapter 7 case. A couple may not qualify for Chapter 7, but after the divorce, one or both parties may qualify for Chapter 7 based on their income.
If a Chapter 13 case is the best option or the only option for bankruptcy relief, the spouses may want to file separate cases after the divorce is final.
Most Chapter 13 plans are 60 months. Even spouses who are on good terms may not want to be tied together financially for five years after their divorce. Each spouse would be entitled to copies of all documents filed in the bankruptcy case for the next five years, including tax returns and other financial documents. That may not work well for many divorced couples.
Contact Our Peoria Bankruptcy Attorneys for More Information
Divorce and bankruptcy can be complicated. However, with careful planning, you can obtain the debt relief you need to start a new phase of your life while protecting your best interests throughout the divorce proceeding.