In today's world, it's not uncommon for financial troubles to end in divorce. As a result, more and more couples find themselves facing bankruptcy and divorce. Consequently, the question often arises: should I file for bankruptcy before or after divorce? While each case is different and requires careful consideration of a number of legal and financial issues, in general, filing for bankruptcy first may be in the interest of both spouses.
Why? Well, if you qualify for Chapter 7 bankruptcy, your unsecured marital debt will be wiped out. This means debts on jointly held credit cards, medical bills, and certain kinds of loans will be discharged. This can make the division of marital assets easier and streamline the divorce process. It may place you in a better financial position after divorce.
If your spouse files for bankruptcy before your divorce while you wait until afterward, creditors can initiate collection actions against you. As a result, while you struggle to make ends meet as a single-member household, creditors may initiate collection actions against you that range from wage garnishment to withdrawals from your bank account.
Chapter 13 Bankruptcy and Divorce
What happens in cases where you and your spouse tried to save your home and filed for Chapter 13 bankruptcy but are now going through a divorce? First, if you've already filed for bankruptcy together, you will need to discuss certain divorce issues with your bankruptcy lawyer. Here, it's important to remember that he or she represents both of you. As a result, he or she cannot act in a way that is prejudicial to one party or the other.
Second, in order to avoid potential problems with the terms of your Chapter 13 bankruptcy, you will need to clearly state who is responsible for what in your divorce settlement in regard to any Chapter 13 payment responsibilities. These obligations need to be included in your divorce agreement in order to protect each of you in case either party fails to abide by the terms of the agreement.
If you and your spouse cannot agree on terms to be included in your divorce settlement regarding your Chapter 13 bankruptcy, you will need to bifurcate your Chapter 13 filing and hire separate bankruptcy lawyers to represent you.
Divorce Agreement Obligations and Bankruptcy
By and large, child support and alimony obligations are not dischargeable through bankruptcy. On rare occasions where the court believes a spouse or parent is unable to afford support payments, these debts may be discharged through bankruptcy.
If you are facing divorce and significant financial difficulties, contact Frisco, Texas divorce and bankruptcy attorneys Pfister Family Law today. We can evaluate your situation and discuss the best legal options available to you.