Divorce And Bankruptcy: Which First?

Divorce And Bankruptcy: Which First?

Divorce and Bankruptcy often go hand in hand. The financial consequences of divorce can be severe and many people ask which one should they file first.

Divorce and Bankruptcy Often Follow Each Other

Divorce and Bankruptcy are so closely tied together because in today’s economy, it is hard to run a household without two incomes. It’s also harder than ever to be debt free: medical bills, car loans, mortgages, credit cards, tax debts. Odds are a divorce will not only divide property, but debts as well. Divorce can get especially nasty when dividing debts.

If you are thinking about divorce & bankruptcy, then you may be wondering which one should you file first? Each situation is unique, so this may not apply to everyone, but here are things to think about with contemplating divorce and bankruptcy.

Why File for Bankruptcy First?

In a perfect world, all couples who are divorcing would be on good terms with their soon-to-be ex-spouse. That doesn’t always happen, but when it does, it opens up the option of filing a joint Chapter 7 Bankruptcy – assuming there is no conflict of interest. The benefit of filing a joint Chapter 7 bankruptcy is that you can wipe out joint debts in a relatively short period of time and then get on with your divorce. A joint Chapter 7 bankruptcy usually costs the same as an individually filed bankruptcy, so there are financial savings as well.

Divorce and Bankruptcy – Divide Property & Obligations

Another benefit of filing for bankruptcy first is that you can divide property. For instance, if both husband and wife are jointly on a car loan, one can choose to surrender the car and the other can reaffirm and keep the car. This effectively eliminates one spouse from the car loan. A divorce may divide property, but the creditor does not have to refinance the loan taking the spouse off the loan. Bankruptcy solves that problem. The same idea applies to mortgages. If one person wants to keep a house and assume the mortgage, it can be difficult to refinance the mortgage removing the other person.

A properly planned out bankruptcy can divide assets and debts before a divorce is filed, eliminating a lot of litigation and costs of a divorce. A Chapter 7 bankruptcy can also wipe out joint contracts like cell phone contracts, apartment leases or gym memberships. It will make the following divorce less messy and more than likely much cheaper as there are less assets to divide.

Why File for Divorce First?

One reason, and perhaps the biggest to file a divorce first is the parties simply cannot get along. A bankruptcy also requires disclosure and transparency. This process my be too stressful for a couple to go through together. Another reason you may file a divorce first is that your joint income is too high to qualify for Chapter 7.  There may also be non-exempt assets that are subject to a liquidation in a Chapter 7. Finally, it’s possible that one or both divorcing spouses are better off in a Chapter 13. 

Divorce and Bankruptcy raises serious, potentially complex issues. If you have questions about Divorce and Bankruptcy or any other issue, please give us a call at 785-379-3600 for a FREE Consultation over the phone, in person or you can email us now.