Many people file for bankruptcy as a result of their costly divorce. But what if you already have debt issues before the marriage crumbled? She liked Coach bags a little too much or he enjoyed a few too many Cuban cigars?
Many people come to our Detroit divorce and family law firm to ask, “Which should I file first? Bankruptcy or divorce?”
The answer isn’t so simple.
Before you can decide which process you should embark on first, there are several issues to consider. These factors will determine the timing and the cost:
If you are considering both a divorce and bankruptcy, you’ll probably need two lawyers. Each legal process will have its own court fees.
Filing bankruptcy before divorce will usually lower the cost of both.
The court fees for bankruptcy are the same whether you file jointly or individually. Plus, the bankruptcy attorney fees will probably be less if you file jointly rather than file two individual bankruptcy cases.
And since bankruptcy before divorce means allocating debt (her Neiman Marcus card) and property (his Harley) will be simpler during the divorce, those fees will probably be lower too.
Another important issue to consider regarding the combination of bankruptcy and divorce is the length of the process.
Chapter 7 bankruptcy is usually completed within a few months. Therefore, it would be easy to quickly resolve debts before advancing with a divorce. Our Detroit divorce attorney can help you whenever you are ready to proceed.
However, Chapter 13 bankruptcy can take three to five years. That is a long time to be tied to your current spouse (and her shopping sprees or his poker club)! If you need to file Chapter 13 bankruptcy, it is probably best to file individually after the divorce is finalized.
After custody, support, and visitation issues, dividing property is one of the most challenging tasks a couple must face.
Therefore, it may seem like a great idea to file bankruptcy before the divorce and do away with all the property that ties the two of you together. In some instances, this is a good idea. However, there are things to consider (maybe she likes the Harley).
All bankruptcy cases include exemptions. Some states allow spouses to double the exemption amounts on items they purchased together. If you live in a state that allows double exemptions, it is wise to file bankruptcy while you are still married and take advantage of the full exemption amount.
However, if your state does not allow for double exemptions on property, it might be best to wait until after the divorce is finalized and the property has been divided.
It should be noted that bankruptcy should either be filed before or after the divorce—not during. If you file bankruptcy during a divorce, it will halt the division of property involved in the divorce until the bankruptcy has been finalized. That means, the divorce could last much longer than you’d like it too (several more purses or cigars). Talk with our Detroit family law expert about other issues that could prolong your divorce case.
Doing away with debt before a divorce means spouses will spend less on the fees associated with its distribution. It also protects the future financial stability of each individual spouse.
The divorce decree might state John is required to pay his portion of the credit card debt. If he fails to do that, the creditors can go after Mary—even though they are divorced.
If Mary chooses to pay the debt in order to avoid a black mark on her credit score, John is required to reimburse her (since he violated the divorce decree). Even if John files for bankruptcy on his own, he is still required to reimburse Mary for what she paid. However, Mary will probably spend a lot of time and money trying to get that reimbursement from John (she’d be better off taking the Harley).
Chapter 7 bankruptcy has income guidelines. If spouses file jointly—before a divorce—both incomes will be taken into consideration. If the joint income is too high, they won’t qualify.
In these situations, it would be best to wait until after the divorce when the individual incomes are lower in the two separate households.
Both divorce and bankruptcy are complicated legal issues. It isn’t advisable to tackle either one without representation.
Hiring a bankruptcy attorney has many benefits. Not only will you get help with your current financial disaster, a bankruptcy lawyer usually has other areas of expertise—like foreclosure and debt litigation. Therefore, he can look at your overall situation and recommend a solution that is best in the long run.
Once you have located and hired a bankruptcy lawyer, you’ll also need to secure a divorce or family attorney. A divorce attorney can help with much more than just dividing property. He can also help you with custody, support, and visitation.
If you have questions about filing for divorce in the midst of financial issues, contact Bo Schimers for a free phone consultation. Alternately, you can fill out the form to the right. Either way, someone will contact you within 24 hours to review your divorce and financial situation.