Couples that are considering divorce may also be weighing bankruptcy protection to tackle a difficult financial situation. Many wonder if it is better to file before or after the divorce. First consider that getting tangled up in a bankruptcy proceeding during a divorce can delay the distribution of marital assets and liabilities until the filing is complete. It is important to consider the timing if you intend to file for bankruptcy. That said, why would a couple file for bankruptcy before divorce?
If you are married, you and your spouse can file for bankruptcy separately or jointly. If you file a joint bankruptcy you will save money by rolling it into one case instead of two, and you will be able to discharge qualifying debt in both of your names. Sometimes filing together might enable a higher earning spouse to qualify as opposed to waiting until after a divorce, where he or she might not be able to qualify. As a couple you may have higher exemptions allowing you to hold on to more of your property while eliminating unsecured debt such as credit cards and medical bills under a Chapter 7 bankruptcy. If you have secured debt such as a mortgage or car loan, a Chapter 7 can cancel these contracts so that the two of you can walk away from the marriage relatively free and clear, although it is important to remember that creditors must be able to recoup the full value of what is owed. Moving on to the divorce, you and your spouse will have already dealt with the debt so the divorce process will not be held up assigning debt and hoping each spouse lives up to the bargain when both names may be on a card or loan.
Filing for Bankruptcy After a Divorce
If you and your spouse make too much money together, making it impossible to qualify for a Chapter 7, you or a spouse may both qualify after the divorce when you are maintaining separate households. If only one of you is filing, the non-filing spouse who may have been awarded the family home in the divorce is not at risk of losing it if the transfer of property was handled properly. Because you and your spouse may have child support or alimony awards in the divorce, waiting to file bankruptcy until the divorce is finalized will result in a clearer picture of what income you both will have for the purposes of filing bankruptcy or deciding against it.
Chapter 7 VS Chapter 13 Bankruptcy
Chapter 7 bankruptcies are quick and offer a chance to wipe the slate clean – but you must pass the means test to qualify. If you and your spouse have higher incomes and a good amount of assets, you may consider a Chapter 13 bankruptcy repayment plan while you are still married allowing you to hold onto more assets while keeping creditors at bay. Keep in mind, however, that a Chapter 13 plan can last 3 to 5 years. During that time, marital property division in a divorce proceeding will likely be delayed.
Contact an Experienced Marital Property Division Lawyer for Help
The division of marital assets and debt requires detailed attention in order to get a fair shake and to be able to move forward in the best financial shape possible after the divorce. It is in your best interest to visit with an experienced divorce attorney to discuss the best strategy to deal with debt effectively. Contact the Libertyville Illinois Family Law Offices of Schlesinger & Strauss LLC for help at 847-680-4970.
