Since financial distress can provoke a lot of conflicts, bankruptcy and divorce often coincide – but which do you tackle first?
Since either action can complicate the other, it’s generally wisest to decide which legal process you want to tackle first, and that means weighing the pros and cons of each approach.
What to consider if you’re thinking of filing bankruptcy first
A lot of financially pressed couples decide to go through bankruptcy first because of the benefits it can bring to both their daily lives and their divorce process. Consider these:
- An automatic stay goes into place that halts most collection efforts, and that can give you a chance to start putting money together to pay for your divorce and eventual relocation.
- It will be much easier to divide up the marital assets and debts once the bankruptcy is over. The vast majority of people who file for a Chapter 7 bankruptcy keep all or most of their assets, but lose their unsecured debts. Alone, that can make dividing the marital estate a lot more straightforward.
If you can’t file for Chapter 7 because you don’t meet the income limits, however, you will need to file for a Chapter 13 debt reorganization. That means you could be looking at a years-long process before you can finally move on from your marriage. That could be a critical factor in your decision.
What to think about if you’re considering filing for divorce first
Filing for divorce first allows you more control over the timeline of your split, potentially enabling you to move forward with your life sooner. It can also have the following benefits:
- If Chapter 13 is an unwelcome option, divorce takes your spouse’s income out of the equation, potentially allowing you to proceed with debt relief under Chapter 7, instead.
- If the debts that are so overwhelming are largely your spouse’s doing, the court may find it equitable to assign the majority of those debts to them in your split. You may not need to file for bankruptcy when the divorce is over.
Without the benefits of bankruptcy, of course, you may still be hounded by debt collectors, and that could make it harder to afford your divorce and all the upcoming changes.
By seeking experienced legal guidance, you can better evaluate your specific circumstances and make an informed decision that aligns with your needs and goals.