Bankruptcy and Divorce: Which Should You File First?

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Julie O'Bryan  |  08-16-18 | 2:16pm

It should come as no surprise that bankruptcy and divorce are often closely associated. Splitting assets in a divorce is costly, so it's easy to end up with more bills than you can cover.

That being the case, we know you're interested in learning how to soften the blow. So let's discuss ways you can ensure bankruptcy and divorce won't be a nasty one-two punch that knocks you out.

Filing a Joint Petition for Bankruptcy

If you and your spouse already know you're going to divorce, it's a good idea to file bankruptcy first. To some extent, it lets you both start again with a clean slate. Plus, it's cheaper than filing separately, since joint and individual filing fees are the same. It simplifies property division. too.

If you also hire a bankruptcy lawyer together, you'll save even more money. Just be sure you tell your personal divorce attorneys what you're doing, so you can avoid any potential conflicts of interest.

Of course, all this assumes that your relationship with your spouse is still amicable enough to pull it off. If not, or if one of you needs to file for bankruptcy protection immediately, then go ahead and file separately.

Chapter 7 or Chapter 13?

In the U.S., personal bankruptcy comes in two flavors: Chapter 7 and Chapter 13, named for the portions of the U.S. legal code that regulate them. Both automatically provide protection from your creditors. You can use Chapter 7 to dismiss unsecured debt like credit cards, and can usually finish up the bankruptcy in just a few months—likely before your divorce is granted.

Chapter 13 bankruptcies, on the other hand, linger for 3-5 years, since you're forced to pay back some or all of your debts. Therefore, Chapter 7 bankruptcy will help with your divorce much better than Chapter 13 ever could.

Dividing Property After a Bankruptcy and Divorce

If you can manage a joint Chapter 7 bankruptcy before the divorce, it will probably be much easier to divide your property, and you'll no longer face the debt you managed to discharge. There is a "but," however, and it's a big one: you'll need enough property exemptions to protect all the assets you share, especially high-dollar items like homes and cars. If you file jointly, you may be able to double your exemptions; this depends on the state. If your state does allow such exemptions, that's another good argument for filing jointly.

If you can't get exemptions for all your property, then let the divorce proceed, and wait until after the property division to file bankruptcy.

Yet Another Argument for Joint Filing

If you don't file bankruptcy together before your divorce, the judge may end up assigning your marriage debts before you get down to dividing the assets. In other words, you may be forced to pay a debt you both piled up, or one that your spouse is mostly responsible for. That doesn't release whoever isn't ordered to pay the debt of their responsibility for it, however. If the person ordered to pay it then discharges it in a bankruptcy, the creditor will go after the other spouse.

Contact Kentuckiana Bankruptcy and Divorce Lawyer

If any of the above confuses you, you're not alone. Luckily, O'Bryan Law Offices has a firm handle on pre-divorce bankruptcies in south Indiana and north Kentucky, and we'd be happy to help with yours. If you've both agreed to a divorce and want to save a fortune, give us a call at 502-400-4020 for a free consultation.

Life-changing events often hurt. But if you combine bankruptcy and divorce properly, with our help, you can land on your feet and restart your lives easier.

Contact O'Bryan Law Offices Today