Money trouble causes many marriages to fail. However, if you are contemplating divorce, those problems will follow you, and convincing your future ex-spouse to meet their financial obligations will be even more difficult once the marriage is over.
If you and your spouse are currently insolvent (meaning that you are unable to meet your debt obligations), this will definitely not improve after divorce. Combining divorce and bankruptcy is often the best solution: it affords you the opportunity for a fresh start both financially and emotionally.
Timing
Filing bankruptcy while going through a divorce creates a lot of work. This is because property division and debt obligations are uncertain, and the federal bankruptcy court and your state court will both retain jurisdiction over matters. Thus, it may make the most sense to either:
1. File for joint bankruptcy while married, and initiate your divorce after the discharge is issued and the case closes, or;
2. Wait until the divorce decree is final and then file bankruptcy individually.
Pros And Cons
If you file bankruptcy while still married, your joint debts will be discharged at the conclusion of the case. However, only want to do this with a chapter 7 liquidation filing, and avoid reaffirming shared debts. If you and your spouse own few assets, this may be a viable option. However, if your spouse incurs further debt after the bankruptcy petition is filed, you both may end up being responsible for those extra incurred debts in divorce. That’s because a discharge only wipes out those debts incurred prior to the date your petition was filed with the court.
You do not want to file a chapter 13 bankruptcy if contemplating divorce. A chapter 13 reorganization requires you complete an approved payment plan, which would be stretched out over a three- to five-year time period. If you own a home with your spouse, you would want to postpone filing bankruptcy until after the divorce was final and a property distribution had been made.
Reaffirming secured debt held in both names
Any secured property you own — secured meaning that the bank holds title on the asset pending full repayment of the loan — can be repossessed by the bank during and after bankruptcy when you are not making payments. Bankruptcy will wipe out the obligation to repay the bank for that debt, but you cannot keep the secured property free and clear of the debt incurred to purchase it. For this reason, if you decide to file while married, you should contemplate your ability to pay the debt on your own if you are considering reaffirming joint debt.
Filing for bankruptcy and divorce are huge life decisions. You should discuss the timing and potential pitfalls of each in depth with your attorney, who should be experienced in both family and bankruptcy law, prior to finalizing your choice.
