Financial struggles are a common source of marital difficulties that lead to divorce. Going through a tough divorce during the COVID-19 pandemic is difficult enough. Still, the struggles will be exacerbated if you lose your job or have to pay for extensive medical attention. Even if you don’t get sick or lose your job, divorce hurts most peoples’ finances and is the leading cause of bankruptcy in the United States.
Divorce and bankruptcy are two of the most stressful and mentally draining experiences a person can go through. Nonetheless, planning ahead will make both your bankruptcy and divorce less complicated and less expensive. The amount of property and debt you have, as well as the form of bankruptcy you intend to claim, determine if you can file for bankruptcy before or after a divorce.
In addition, applying for divorce and bankruptcy at the same time is not a smart option. Filing for bankruptcy when divorcing will confuse property separation, make each spouse’s living arrangement less predictable, and cause both the bankruptcy and the divorce to be prolonged.
Filing a Joint Bankruptcy
Debts, like assets, can be separated into two categories: shared and independent. Debts incurred through the marriage, such as a house mortgage, shared credit card balances, child-related bills, and joint loans, are all considered joint debts. Individual debts can include student loans and other debts incurred prior to the marriage.
If the couple has many shared debts, they may want to discuss filing for bankruptcy together. More considerable joint assets, such as a house with a mortgage on both partners’ names, may be protected in this way. If a couple of divorces and only one partner inherits the estate, the equity may be too high for a single bankruptcy filing to cover, and the home may not be secured.
However, married couples are not required to file together. Individual bankruptcy filings can make sense if one partner requires bankruptcy protection right away. Alternatively, due to a joint reduction in income, each partner can find it easier to file for bankruptcy after the divorce. However, while it is possible, several couples find that filing together simplifies the divorce process.
Getting Divorced First
The main reason for filing for divorce first is to fit the criteria for Chapter 7 bankruptcy. In comparison to Chapter 13 bankruptcy, which discharges some forms of debt but allows creditors to negotiate a multi-year recovery agreement, Chapter 7 discharges all eligible debts. To qualify for Chapter 7, your salary must be less than the state median. When one spouse receives the majority of all of the household income, completing a divorce before filing for bankruptcy can allow both parties to file for individual Chapter 7 bankruptcies.
Filing for Bankruptcy First
Suppose you and your spouse have agreed on filing a collaborative divorce. In that case, it’s best to apply for bankruptcy first so you will split the cost of all legal fees and get extra protection from shared debts. Consequently, some states apply for double property deductions by claiming joint bankruptcy. This means that if the sole exemption for a house is $75,000, a person applying for bankruptcy together will benefit from a home exemption of $150,000. Furthermore, the bankruptcy court can split your assets for you, making the divorce process more manageable.
It’s never easy to get through bankruptcy or divorce, but with a good plan and some good faith in both parties’ sides, it’s possible to move on and start regaining a stable financial basis in a couple of years. Dealing with divorce and bankruptcy at the same time can be overwhelming; before deciding how to proceed, speak with a reliable bankruptcy attorney.