If you’re struggling under the weight of debt and experiencing extreme financial hardship, there is a good chance that your stress and frustration has spilled over into other areas of your life, as well. You may be considering filing for divorce on top of filing for bankruptcy, and feeling confused about which one should come first. In this blog, we’ll be giving you a brief overview of the most common types of bankruptcy people file for, as well as detailing how the typical process works. Then, you’ll learn why the order in which you choose to file for bankruptcy and divorce matters!
Chapter 7 Bankruptcy
Sometimes referred to as “liquidation” bankruptcy, Chapter 7 involves certain assets being liquidated or sold to pay off a portion of an individual’s existing debts. Once an individual files for Chapter 7, the court issues an automatic stay, meaning all wage garnishment, foreclosure, property collection, eviction, and creditor harassment must stop. Each state has their own list of exempt and non-exempt assets, and only non-exempt assets will be used to settle your debt.
Only people who pass a means test may file for Chapter 7, which usually means they have little to no disposable income. Chapter 7 can usually be resolved in a matter of months, and allows the filer to quickly start fresh and begin building their credit back.
Chapter 13 Bankruptcy
Sometimes referred to as “reorganization” bankruptcy, Chapter 13 allows the filer to keep ownership of their assets while they make monthly payments of an amount determined by the court for the next 3-5 years. After that, most of their remaining debt gets discharged.
As with Chapter 7, anyone filing for Chapter 13 bankruptcy will be protected from lawsuits, wage garnishment, and other creditor tactics. Many people choose Chapter 13 over Chapter 7 because they are employed or still earning disposable income. Credit card debt, medical debt, personal loans, and past-due bills are all forms of debt that are able to be discharged.
What Should I Consider Before Filing For Bankruptcy Or Divorce First?
Joint Liability
First, you should have a clear understanding of what exactly a joint liability is. If you and your spouse both signed for a loan – such as for a house, a vehicle, or school tuition – then you are both jointly liable (responsible together) for that debt. Since debt is the catalyst for bankruptcy, you will need to consider the debts that you have entered into together before deciding when will be the best time to file for divorce.
The type of bankruptcy you file for also needs to be considered. Chapter 7 proceedings can generally be resolved in a matter of months, while a Chapter 13 payment plan lasts for 3-5 years. If you are desperate to get out of your marriage, you may not have it in you to wait so long to file for divorce. However, there are some advantages to filing for bankruptcy before divorce, if it is in any way possible for you.
Generally, if you are both jointly liable for the majority of the debt, it would be more effective for the two of you to file for bankruptcy first, to have the best chance at getting the most debt discharged. In addition, division of debt through divorce proceedings will not affect each spouse’s liability. For example, if you decided to file for divorce before filing for bankruptcy, the judge may order your spouse to pay a certain amount of your joint debt. However, if they fail to follow the order, you are still liable to creditors when it comes to that debt.
With the issues of the debts already handled through bankruptcy, the divorce process also becomes much simpler, and can be resolved much faster.
Shared Legal Responsibilities
If you and your spouse file for bankruptcy together (before divorce), then you will only have to pay a single filing fee, rather than paying it yourself after divorce proceedings. You will also be able to share the legal fees involved with bankruptcy proceedings. Therefore, filing for bankruptcy before divorce will yield clear advantages in this area.
Credit Scores
It probably goes without saying that filing for either type of bankruptcy will severely impact your credit score, but if you were already in over your head with debt, your credit score probably wasn’t the best to begin with. You are also in a better position to get your score higher without the debt holding it down following bankruptcy proceedings.
Divorce proceedings don’t affect your credit score directly, but certain scenarios following a divorce can. Remember those joint liabilities? Your name is on them, along with your spouse’s; therefore either of your actions have the power to impact the other. As already described, a judge’s ruling in your divorce proceedings about who should pay what debt does not negate your contract with a lender.
If you should decide to get a divorce before filing for bankruptcy, your former spouse may resort to vengeful tactics in any way they can. By failing to make payments on one of your joint loans – even if they were ordered by a judge to pay it – your credit score will suffer the consequences. Once again, in this instance, it is probably better to file for bankruptcy before you file for divorce.
Do I Need A Divorce Attorney Or A Bankruptcy Attorney?
You will ultimately need both attorneys at one point or another. In order to make the ultimate decision on whether to file for bankruptcy or divorce first, you should seek the guidance of an experienced bankruptcy attorney. They will be able to analyze your finances much more closely and help you make the choice that will put you in the best possible position to move forward successfully. They are also knowledgeable of the laws in your specific state and how they may affect your divorce if it is already in progress, or if you are planning to file in the near future.
No Case Is Too Complicated For Our Firm
The Santos Law Offices, P.A. can help you navigate your bankruptcy case no matter which order you filed in. We have experience in resolving even the most difficult of cases and obtaining positive outcomes for clients. Our services are personalized to your current situation, so we initiate strategies that are tailored to help you reach your unique goals. Call today to learn more through a free phone consultation!
