Divorce Or Bankruptcy: Which Should Come First?

Unfortunately, financial problems that cause people to consider bankruptcy can also cause them to consider filing a divorce as well. Even though divorce and bankruptcy often go hand-in-hand, it does not necessarily mean that filing bankruptcy and divorce at the same time is a wise move. Whether to file bankruptcy or divorce first is a question that requires a significant amount of forethought and skilled legal advice.

Type of bankruptcy

Most couples can file either Chapter 7 or Chapter 13 bankruptcy, as individuals rarely use Chapter 11. Chapter 7, also known as liquidation bankruptcy, is typically a very quick process that lasts as little as a few months. Because of this, it is a viable option before the divorce is filed.

However, one challenge that Chapter 7 has is that couples wishing to file it must undergo a means test. During this test, a court examines the couple’s income. If the amount of income is too high, the couple may be forced to file for Chapter 13 instead. If this is the case, many couples choose to wait until after the divorce to file Chapter 7 as individuals. In this case, the court would only consider the individual filer’s income during the means test, which may allow him or her to qualify for Chapter 7.

If a couple wishes to file for Chapter 13 because they do not qualify for Chapter 7 (or want to avail themselves of the many benefits of Chapter 13), it is typically better to wait until after the divorce is completed. The Chapter 13 process is much slower than Chapter 7, lasting anywhere between three to five years.

Financial considerations

Couples who decide to divorce because of financial problems often want to minimize costs. Because of this, many choose to file bankruptcy before the divorce because they only have to pay one bankruptcy filing fee and can be represented jointly by one attorney.

However, being represented by one attorney is not advisable in every case, as the issues surrounding the divorce can affect how the bankruptcy case is handled. This can create a conflict of interest, requiring both spouses to be represented by separate attorneys. In such cases, it is often better to wait until after the divorce is finalized before filing bankruptcy.

Property division

One benefit of filing for bankruptcy before divorce is its effect on property division. During a divorce, a significant amount of time and money is spent determining the responsibilities for debt. If bankruptcy is filed before the divorce, this process is simplified, because bankruptcy wipes away most of the debt. As a result, couples can have a smoother, less contentious and less expensive divorce if the issue of debt has already been decided in the bankruptcy.

Couples that are considering both bankruptcy and divorce are well advised to seek the advice of an experienced bankruptcy attorney. An attorney can consider the couple’s unique situation and recommend a solution that would best avoid future complications. Contact us today at (303) 438-8477.

How Can We Help?

We encourage you to contact us if you have questions concerning bankruptcy, family law, probate or tax law. Attorney Harold Faletti is available to provide personalized attention and address your concerns.