Bankruptcy and divorce can sometimes play out simultaneously in a person's life. Financial trouble is one of the leading causes of tension and arguments in a marriage. When a couple is contemplating both a divorce and a bankruptcy filing, which should come first?Unfortunately, some couples may face foreclosure, repossession, wage garnishment, and debt collection lawsuits while they wait for their divorce to become final before filing for bankruptcy relief. Therefore, in some cases, a bankruptcy filing may be necessary before the divorce is final. However, filing a bankruptcy case during a divorce proceeding can create more problems or make some cases much more complicated. If you are facing this choice, it is helpful to learn more about the timing of a divorce and bankruptcy filing from an experienced Michigan divorce lawyer.
Filing Bankruptcy Before DivorceIn some cases, filing bankruptcy before a divorce is final benefits both spouses. If a couple has a significant amount of debt that neither spouse can afford to pay, the couple may want to consider filing a joint bankruptcy petition while they are still married.
A no-asset Chapter 7 bankruptcy case usually takes four to six months to complete. A couple saves money by paying one filing fee, one fee for bankruptcy courses, and one attorney's fee. Both spouses discharge unsecured debts they are unable to pay in just a few months. By clearing old debts, the couple can move forward after the divorce with a fresh start financially and personally.
However, there are situations in which filing a joint bankruptcy petition may not be in the best interest of both spouses. For example, a couple may not qualify to file a Chapter 7 case because their combined income exceeds the income levels to qualify for a discharge under Chapter 7. If they file bankruptcy under Chapter 13, the spouses are committed to a 36 to 60-month bankruptcy plan. However, after the divorce, one or both spouses may qualify to file under Chapter 7.
Therefore, each spouse should seek independent legal advice from a qualified family law attorney before deciding whether to file a bankruptcy case before, during, or after a divorce.
Filing Bankruptcy After a DivorceEven though filing bankruptcy after divorce may result in increased bankruptcy costs, certain circumstances may make filing bankruptcy after divorce a better option.
As discussed above, spouses may need to obtain a divorce or legally separate to qualify for a Chapter 7 case. In other situations, spouses may not be able to work together to file a joint bankruptcy case because of domestic abuse or disagreements related to divorce issues such as property division, custody, and support. While a couple could file a joint bankruptcy petition by communicating only through their attorneys, it can make the process much more difficult and increase the chance of mistakes and errors because of a lack of communication.