Individuals file bankruptcy for a variety of reasons, such as medical debts, business failure, loss of a spouse, and divorce. Divorce is one of the reasons that many people need to seek the assistance of the bankruptcy court for debt relief.  However, if you anticipate that you may need to file bankruptcy because of your divorce, should you file the bankruptcy case before or after your divorce is final? In either case, working with a Michigan divorce lawyer is strongly recommended.

Bankruptcy and Divorce — Which Comes First?

The answer to this question depends on your specific situation. In some cases, filing a joint bankruptcy case before a divorce can assist both spouses in eliminating debt. It cost the same to file a joint bankruptcy case as it does to file an individual case. Therefore, filing a joint bankruptcy case before you file for divorce can be a wise option for some couples.

Another important consideration is whether you qualify to file under Chapter 7 or Chapter 13 of the Bankruptcy Code. A Chapter 7 no-asset case can be completed within four to six months after the filing of the original bankruptcy petition. However, if you and your spouse earn too much income to qualify for Chapter 7, a Chapter 13 case would be your other option. A Chapter 13 case takes three to five years to complete. Most couples do not want to wait five years to complete a divorce.

One note to keep in mind is that once you separate, your household income may qualify for a Chapter 7 bankruptcy filing. At that point, you would need to consider the other factors involved in your case to determine whether to file bankruptcy now or after your divorce.

Domestic Support Obligations and Property Division

If you believe you can file a bankruptcy case to get out of paying support payments, you are wrong. Bankruptcy does not discharge child support or spousal support obligations. If this is the only reason you are considering filing for bankruptcy relief, you might want to consider your options for debt relief again.

When you file a bankruptcy petition, an automatic stay is immediately in effect prevent creditors from taking any actions to collect a debt without court approval. However, the automatic stay also applies to your divorce action. You will not be able to move forward with a property settlement agreement without permission from the bankruptcy court because a debtor's property belongs to the bankruptcy estate until the bankruptcy is closed or the property is abandoned or released from the bankruptcy estate. A bankruptcy stay does not apply to issues related to support , custody, and parenting time.

Contact a Michigan Divorce Attorney to Discuss Divorce and Bankruptcy in Further Detail

For some couples, filing bankruptcy before a divorce case is completed eliminates the issue of who pays for the marital debt. Filing a bankruptcy case can eliminate marital and individual debts. Eliminating marital debt is a huge consideration when you realize that it can be exceedingly difficult to get rid of marital debt after the court orders you to pay this debt, even if you file a bankruptcy case in the future.

You can avoid costly mistakes by discussing the issues of divorce and bankruptcy with a Michigan divorce attorney before you take any steps. Contact Michigan divorce attorney Cameron C. Goulding to discuss your financial issues surrounding divorce.