The Link Between Bankruptcy and Divorce

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The Link Between Bankruptcy and Divorce

First comes divorce, then comes bankruptcy. Or maybe it’s the other way around.

Either way, these two legal issues tend to be closely linked. If you file for one, there’s a great chance you’ll end up filing for the other. Sometimes, both cases are even happening at the same time.

Here are a few things to keep in mind.

If possible, don’t let the two cases overlap.

When you file for bankruptcy you receive an automatic stay. The automatic stay stops the family court judge from dividing your debts and assets. It has to wait until your discharge, which means a longer, more complicated divorce process.

If you’re already embroiled in both a divorce case and a bankruptcy case you need specialized legal help.

Be strategic about which case you open up first.

Now that we’ve established you shouldn’t file for bankruptcy during your divorce you have to decide whether you’re going to file before, or after.

If you know you both want to file for bankruptcy it may be wise to file together and wait on the divorce. You’ll increase your exemptions. You’ll both end up paying for a single bankruptcy case. Filing before also means you’re not dividing up marital debts anymore, as most of them will be discharged.

Keep in mind this isn’t always the case. For example, you might realize after the divorce that your household income has suffered so much you don’t have any other choice but to file. A great deal will also depend on the type of bankruptcy you need to file.

Be aware bankruptcy can sometimes be an ex’s answer to a divorce decree he or she doesn’t like.

Be careful if the ex offers to take on all the marital debt in return for some concession from you. This could mean he or she is doing so with the intent of filing for bankruptcy immediately after the divorce.

This would protect the ex from having to pay and would send creditors right back to you for any debts you have your name on. You could end up being sued over these debts. This isn’t always the ex’s plan when they make this offer, but it’s still a good reason to be wary.

You might want a lawyer who practices both family law and bankruptcy law.

An attorney who understands the complex ways divorce and bankruptcy laws can play out is a great way to protect yourself from unexpected consequences. Indeed, the intersection of these cases is so common that a recent article from the American Bar Association strongly suggests family law attorneys collaborate with bankruptcy attorneys if they don’t practice bankruptcy law themselves.

Fortunately the team at Sadek and Cooper practices both forms of law, which means we can keep an eye out for all the potential problems. If you think both bankruptcy and divorce are on your horizon, contact us for your free consultation today.

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