If you are considering divorce, chances are that you are also experiencing financial problems. Sometimes, the stress of debt problems and tight budgets contributes to a divorce. In other cases, divorce itself causes the financial strain. When you are in this situation, you may have many questions about bankruptcy and divorce. Below, we explain some of the frequently seen issues when bankruptcy and divorce coincide.
Should I file for bankruptcy or divorce first?
Bankruptcy and divorce are separate legal proceedings in separate courts. If you or your spouse is contemplating divorce and bankruptcy, the order in which you begin these legal proceedings can affect both cases. If you file bankruptcy before you divorce, you will be able to file jointly. This can be a financially savvy move because you can be represented by one lawyer and pay one filing fee. It can also be important because if you and your spouse hold debts jointly, you may still be responsible for them if your spouse files individually for bankruptcy.
Of course, you can still file for bankruptcy after your divorce is complete, and in some situations this may be a better course of action. For example, divorcing first may lower your income enough to qualify for Chapter 7 bankruptcy. You may also find that you need to file for bankruptcy after divorce if your financial situation becomes unmanageable.
What type of bankruptcy should I file?
Most individuals file for either Chapter 7 bankruptcy, which discharges eligible debts but may require the sale of some assets, or Chapter 13 bankruptcy, during which debtors create a payment plan and remaining eligible debts are discharged after three to five years. The type of bankruptcy you file will depend on your individual circumstances.
Does an automatic stay affect a divorce proceeding?
When you or your spouse files for bankruptcy, an automatic stay prevents creditors from attempting to collect their debts without permission from the bankruptcy court. Two exceptions, however, may apply.
- If you or your spouse begins an action to establish child support or spousal support obligations during bankruptcy, the automatic stay will not prevent a family law court from establishing support.
- During a bankruptcy proceeding, child support and spousal support can still be collected. Whether you can collect arrearages or past-due support will depend on your situation and the type of bankruptcy you file.
Can child support or spousal support be discharged through bankruptcy?
Child support and spousal support cannot be discharged through bankruptcy. Depending on the type of bankruptcy you file, you may or may not be able to continue efforts to collect while an automatic stay is pending. If a spouse owes an obligation that is part of a property settlement, it is challenging - but not impossible - to eliminate some of the obligation.
If you or your spouse is considering ending your marriage, you can prepare yourself financially with careful divorce planning. An experienced attorney can advise you on the financial implications of divorce and advise you on which type of bankruptcy is right for you and when you should file.
