Money problems can put a strain on any relationship. According to some statistics, approximately 80 percent of people who get divorces cite money issues as the main reason for the separations. If you and your spouse have reached your financial and emotional limits, you may be wondering if you should file for divorce first, petition the court for bankruptcy relief first or do both at the same time. Here are a few things to consider that can help you make the best decision for your circumstances.
Filing Concurrently is a Bad Idea
Filing for bankruptcy and divorce at the same time may seem like the speedier option at first glance. Both court procedures take quite a bit of time to resolve (6 months to a year for a divorce; 4 to 7 months for a chapter 7 discharge), so doing both at the same time may seem like it would allow you and your spouse to go your separate ways a lot sooner than if you did them consecutively.
However, both court procedures depend on a financial evaluation to make certain decisions. Thus, each case can interfere with the other and cause them both to draw out longer than necessary. For instance, the divorce court looks at the income and assets of both parties when determining awards for child support and alimony. That may be difficult to do, however, while the bankruptcy court is liquidating the marital assets to pay off creditors.
While it may take longer to extricate yourself from your ex-spouse, it's less complex and confusing if the two of you file the divorce and bankruptcy petitions separately.
Which One to File First?
The type of bankruptcy you want to qualify for will greatly influence which petition you file first. It can take anywhere from 36 to 60 months to resolve a chapter 13 bankruptcy, because this type of bankruptcy requires debtors to pay off a large portion of their debts by making monthly payments to a trustee. Unless you want to be connected to your soon-to-be ex-spouse that long, you should probably file for divorce first.
You may also want to file for divorce first if your joint income places you over the qualification threshold for a chapter 7 bankruptcy. For instance, you must make less than $48,770 in Alabama as a couple to qualify for a chapter 7 bankruptcy. However, as a single person, you can make up to $39,768 and still qualify. So if your income as a couple equals $60,000 but you each make $30,000 individually, then you may want to separate first and then file for bankruptcy afterwards.
On the other hand, the courts take the size of your family into account when you file for bankruptcy. If you divorce and the court awards custody to your ex-spouse, the reduction in household size may prompt the court to convert your chapter 7 case to a chapter 13 on the basis that your income no longer has to fully support those other dependents. In this case, filing joint bankruptcy before divorcing may be the fairer option.
You and your spouse may want to file for bankruptcy first as a means of protecting assets. Many states double the value of exemptions for married couples. For instance, the federal exemption for a home is $22,975. You and your spouse can use both of your exemptions to claim $45,950 worth of equity in a home you own together. The assets you save in the bankruptcy process can then be divided equitably during the divorce proceedings.
Lastly, you'll want to consider the amount of debt you and your ex-spouse has and how it will be divided between the two of you. If you have a significant amount of debt, or you're having a tough time figuring out who will be responsible for paying certain bills, it may be best to wipe the slate clean by filing bankruptcy first and then going your separate ways.
For assistance with reaching a decision about your best course of action when it comes to divorce and bankruptcy, it's best to consult with a chapter 7 bankruptcy attorney who has experience in this field.