If you and your spouse are contemplating making not one, but two big legal moves in the near future, this information is for you. Financial problems and relationship problems sometimes go hand-in-hand, so this issue of which to file first, bankruptcy or divorce, comes up more than you might imagine. Filing one before the other often makes better sense, so read on to learn some details about the order of things so that you can make a better decision.
Up to your eyeballs
If you deal with your debt before you get divorced, you could automatically make one of the most contentious divorce issues virtually disappear. A chapter 7 bankruptcy will eliminate your credit card debt, which often makes up a large portion of a divorcing couple's (and everyone else') debt load.
Bewared of property loss
If you have a great deal of secured debt, you may need to double check the impact it could make on a divorce settlement. Secured debt, which has property to "secure" it, cannot be discharged with a chapter 7 bankruptcy. This means that a bankruptcy filing could end up causing some of your marital property to be foreclosed on, which could affect your divorce property settlement. There are rules in some states that prevent the "shedding" of property prior to a divorce filing, so consult with your divorce attorney before you file for bankruptcy if there is chance you could lose a home, vehicle or other property.
You can help ensure that you don't get stuck in the above property loss situation if you happen to live in a state that allows bankruptcy filers to double their exemptions by filing jointly. Exemptions act to chop off some of the value of an item, such as a home, which could help you to keep more property.
The means to file
To be eligible to file for bankruptcy, your income must fall within certain limits set by each state based on the median income. This rule is an attempt to prevent those with higher incomes from using bankruptcy laws to profit. If you are married, you must calculate both of your incomes, but if you are either single or living in a separate household, you can use just your income. To complicate matters, the bankruptcy regulations allow you to use the "marital adjustment deduction" if your incomes are disparate in amounts. This is a truly complex area, so consult with your bankruptcy attorney if your income is too high to file while married, since you may still have some options other than waiting until after you split up.
Just one of these legal actions can be daunting, but accomplishing both in a matter of months could be extremely challenging. Speak to your attorney for more information. Contact a firm like Granowitz, White & Weber Attorneys at Law to get started.