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Which comes first? Divorce or bankruptcy?

Bankruptcy and divorce often go hand in hand. Money troubles are one of the number one causes of divorce in the United States. It is not uncommon for debt and financial obligations to become so overwhelming that the couples not only want to split up, but must seriously consider bankruptcy.

So which should come first, the bankruptcy or the divorce? Each situation is different, but there are some little-known factors - that can save you time and money - that you should consider when making this decision.

The spouses have the option to either file bankruptcy jointly (before the divorce) or individually (after the divorce). A joint filing costs the same as an individual filing, so filing together will save money. Doing a joint filing can also save money in attorney fees as one attorney can complete the joint filing, rather than having to hire two separate attorneys for individual filings. Be aware that if you do a joint filing, that attorney will not be able to represent either one of you later in the divorce case due to conflict of interest.

All debt held between the couple is divided during the property division process. Filing bankruptcy and taking care of the debt before the divorce will make the property division process more simple.

If you feel strongly that one spouse should be responsible for a particular debt, however, you may want to consider filing separately. During joint bankruptcy, all debt is either liquidated or restructured without any consideration for who acquired the debt - both individuals must handle it equally. During property division, you can advocate to the judge for a certain debt to be allocated to the spouse who incurred it.

You should also consider income qualifications when making this decision. Chapter 7 bankruptcy allows you to completely discharge all unsecured debt, rather than just restructure it as you would in Chapter 13. There are income thresholds, however, to qualify for Chapter 7. If you're hoping to take this path and wipe out unsecured debt, you may not qualify if your combined spousal income is above the income threshold, whereas you might fall beneath it if you filed separately.

Advanced planning and strong legal guidance can save you a significant amount of time and money in the long-run when making this decision. A skilled bankruptcy lawyer can walk you through these factors and others that might affect your specific situation and circumstances. To read more about bankruptcy and divorce, please click here.

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