Should You File for Bankruptcy Before, During, or After Divorce?

Bankruptcy and divorce have strong ties. Financial struggle can lead to divorce and divorce can create financial struggle. Because of this, people often consider filing for bankruptcy along with filing for a divorce. However, for both these proceedings, timing is critical. Should you file for bankruptcy before, during, or after a divorce?

Filing before a divorce can make a lot of sense in many scenarios. A pre-divorce bankruptcy cleans up the debt and financial situation, which actually make the divorce process go more smoothly. A joint petition and approval for Chapter 7 bankruptcy can help eliminate debt in both names quickly. If you cannot qualify for Chapter 7 jointly, consider working together to file separately. This can give each of you lower incomes, which will help you qualify for Chapter 7. Unfortunately, a relationship waiting to start a divorce proceeding doesn't always come with parties on good terms. You can each file for bankruptcy separately and independently of each other, but that will cost extra time, create complications, and generate more confusing paperwork. Chapter 13 is also a possibility, but the process can last for years, whereas Chapter 7 often only takes months. In addition, the Chapter 13 repayment plan will require both parties to participate. The process can tie up assets and make it difficult to divide those assets as well. Filing for bankruptcy before a divorce works best for parties who can work together and are okay with waiting before filing for divorce. If there are problems or a lack of communication between you and your spouse, you may have to file on your own or wait until after the divorce to file.

In almost all cases, you shouldn't attempt to file for bankruptcy and divorce simultaneously. A bankruptcy puts an automatic stay in place, which freezes assets and keeps creditors from trying to collect. The divorce proceedings will involve an attempt to divvy up the marital assets. The court will have trouble splitting assets while a different and ongoing legal process freezes those assets. This scenario can drag out both processes. Some extreme cases can call for filing for both bankruptcy and divorce in the same time period. Those niche situations are best identified by and discussed with a bankruptcy attorney.

If filing for bankruptcy before the divorce is too difficult, then waiting until after the divorce may be the best option. For example, if both parties can't file Chapter 7 jointly, then both of you can wait until after the divorce to try again separately. If you find you will have to file for Chapter 13, even if you file separately, then waiting to start the process until after the divorce can make the most sense. In fact, the nature of Chapter 13 Bankruptcy means that it may benefit you more after you're divorced. The Chapter 13 repayment process will enforce structure on your financial obligations. The process can help you gain a better grasp of your new financial situation post-divorce. Filing for bankruptcy after a divorce does come with some challenges. This is especially true if your exspouse plans to file for bankruptcy as well. Some confusion over who owns what debts can arise, and you may need bankruptcy protection for yourself. No matter what, combining a divorce and bankruptcy isn't something you should attempt without consulting legal help. Bankruptcy, even at the best of times, can become a complicated process. If you're considering bankruptcy, whether before, during, or after a divorce, contact Custer, Custer & Clark LLC Attorneys at Law to discuss your options.