Divorce or Bankruptcy, Which Comes First?

Getting a divorce is probably one of the most stressful events anyone can go through. It is said that financial problems is a leading cause of divorce.  Part of the divorce mediation process includes couples sharing all of their financial information with me so we can decide on equitable distribution.

Equitable distribution not only includes separating all of their assets, it also includes dividing up their debt. Some times, couples are in major debt because of job loss, illness, whatever the reason, there may be no possible way to dig out from under the amount of debt they have. After all, 2 people living on their own becomes much more expensive than living together.

The one question I am always asked by these couples that are in financial distress is, “Do we divorce first or go through bankruptcy first”?  Needless to say, the answer varies based upon each unique circumstance. If bankruptcy is a consideration the couple or one party would like to explore, I always refer them to a bankruptcy attorney.

Here are some general rules to follow from bankruptcy attorney Lee M. Perlman of  The Law Offices of Lee M Perlman. These rules are applicable to all states but as always, since each situation varies, it’s best to consult with an attorney.

“Bankruptcy generally takes precedence over divorce.

Your bankruptcy filing is specific to your credit report and social security number, in other words your bankruptcy filing does not impact your spouse’s credit.

You can file bankruptcy without your spouse’s consent.

If you are living in the same household you should know that is likely required that your spouse’s income will be considered and used in connection with your income eligibility for bankruptcy.

It is best to have your debts treated before you file for divorce so that this process is completed when you get to divorce court.

If you file a chapter 7 (and qualify) where no one is paid back, the process could be completed in approximately 3-4 months therefore not likely impacting or delating the divorce process greatly.

After the bankruptcy is complete and you have your bankruptcy discharge order, or the completion of your case, your divorce can proceed without delay.

There are some cases however where a divorce filing first could make sense. For instance if you are considering a joint chapter 7 bankruptcy your income could be too high to qualify for chapter 7.

It may make sense to wait and see if your income changes when and if you have changes in your household budget and size.

In some cases there could be child support or alimony considerations that may need addressing right away.

It should also be noted that even if the divorce is filed before bankruptcy there is a process to allow the bankruptcy to continue where the parties agree to what is called a joint court order to proceed in the absence of the Automatic Stay.

This simply means the bankruptcy can continue, when all parties consent, while the divorce is pending.

This is a common and typical court order.”

These are general guidelines are not intended to be legal advice. Please always reach out to a professional to discuss your unique situation.