Divorce before bankruptcy or bankruptcy before divorce?
It is a sad fact that the financial problems that trigger a bankruptcy sometimes can also cause couples to divorce. Although bankruptcy and divorce often go hand in hand, this does not mean that it is necessarily a good idea to file for bankruptcy and divorce simultaneously. Whether to file for bankruptcy before or after your divorce is a complicated decision that rests on many factors.
Couples who are financially strapped typically want to minimize costs. As a result, many choose to file for bankruptcy jointly before they divorce, so they only have to pay one filing fee. However, this also means that one attorney will represent the couple. In many cases, this is not a problem, but divorce issues can sometimes create a conflict of interest that can hinder the bankruptcy case, so filing after the divorce makes sense in some cases.
Type of bankruptcy filed
Individuals typically can file either Chapter 7 (liquidation bankruptcy) or Chapter 13. The Chapter 7 liquidation process is typically very quick, lasting only a few months. As a result, it can be completed quickly before the divorce. However, in order to qualify for Chapter 7, couples must undergo a means test. If the combined income of the couple is too high, they may be forced to file for Chapter 13 instead.
The Chapter 13 process is much slower than Chapter 7. It involves a repayment plan that can last for three to five years. As a result, it is usually better to file for Chapter 13 after the divorce.
In some cases, couples may choose to wait until after the divorce to file for Chapter 7 individually, as their individual income (rather than their joint income) may allow them to qualify for Chapter 7.
Division of property
Filing for bankruptcy before the divorce can simplify the division of property process during the divorce. During the divorce, significant time is spent deciding which spouse is responsible for paying a given debt. Since bankruptcy wipes away most of the debt, this allows couples to skip a significant portion of this process, saving time and attorneys’ fees.
In addition, it is better to file for bankruptcy before the divorce in many cases because Connecticut law allows couples that file jointly to double their allowance for exempt property-property that is exempt by law from being sold during the liquidation. This allows the couple to better protect their property from the reach of their creditors.
Consult an attorney
Whether to file for bankruptcy before or after the divorce requires a careful consideration of many individual factors. An experienced bankruptcy attorney can consider your personal situation and recommend a course of action that will minimize any future complications.