It is not a situation many people wish to be in: filing for a divorce and a bankruptcy around the same time. Timing is critical for these procedures to go through right. In some cases, filing the divorce petition earlier can be beneficial, while in other cases it’s crucial to file for bankruptcy first. If you are considering doing both, read ahead to find out more about the process:
Bankruptcy Filings Typically Take Precedence over Divorce
Typically, it’s advised to file for bankruptcy before a divorce. Some people file for bankruptcy in the middle of a divorce. This only delays the distribution of assets in the divorce. A judge would usually recommend waiting until the bankruptcy proceedings are over to finalize asset division. Technically speaking, there is no way to get a divorce and file for bankruptcy at the same time. Debts can be affected by marital status, so one or the other has to be resolved first.
Divorce First for Chapter 13 Bankruptcy
Under Chapter 13 bankruptcy law, both spouses are responsible for debts in a bankruptcy filing. Therefore, under some circumstances, it’s advantageous to divorce before declaring bankruptcy. If both spouses file together, the combined income may not qualify for a Chapter 7 bankruptcy. If you earn less than what your spouse does, you may be able to individually file for Chapter 7 bankruptcy after finalizing the divorce. Also, if there are secured assets, like a house, that are tangled up in debt. Proper transfer from one spouse to another may protect the assets from seizure by creditors.
Wipe Out Joint Debt by Filing for Bankruptcy First
The only way to wipe out unsecured joint debt is to file for bankruptcy first. There could be more exemptions when filed jointly in certain cases. Joint bankruptcy filing also eliminates contract loans like car loans. Joint filing for Chapter 7 bankruptcy can be completed in less than 100 days typically. It would then make getting a divorce faster and easier too. A bankruptcy lawyer in Scottsdale or your local area will be able to provide detailed advice regarding this.
Support Obligations are Non-Dischargeable
If a spouse files for bankruptcy in the middle of the proceedings, before or after, that spouse will not be free from support obligation. Any type of support, be it child support or alimony, is regarded as non-dischargeable by the courts. That means it is debt that cannot be eliminated by a bankruptcy court. When a person files for bankruptcy, automatic stay comes into effect. That means debts cannot be collected in the manner of foreclosures, bank levies, or cash collections. However, automatic stay does not apply to alimony or family support. The Bankruptcy Code prioritizes support debt so there’s no way to not pay.
A divorce pending in family court will remain pending until the bankruptcy court finalizes the case unless the bankruptcy court gives permission for the divorce case to proceed. Family support motions are usually stalled in case there is a pending bankruptcy case. While both can be filed at the same time, the proceedings will not move forward at the same time.