Despite the conventional belief that the divorce rates are declining, the divorce rate in the United States is at an all-time high. Statistics show 50% of all marriages in the country end in separation or divorce. With divorce can come bankruptcy — most people filing for bankruptcy cite divorce as the primary reason for filing. There’s the cost of hiring a divorce attorney, renting a new apartment, court expenses, mortgage payments, the loss of economic efficiencies of being married, among others.
Knowing the right time to file bankruptcy and divorce is critical. It’s commonplace for partners to file bankruptcy before getting a divorce as it speeds up the divorce process. However, couples are not restricted to adhere to specific protocols. Enlisting the help of bankruptcy attorneys should help you determine the best time to file either of the proceedings depending on your circumstances. Here’s an overview of their implications.
Filing for Bankruptcy and Divorce at the Same Time?
Any bankruptcy attorney Bismarck ND trusts will recommend filing bankruptcy before going through a divorce. This is because once you file for bankruptcy for chapters 7 and 13, the court declares an ‘automatic stay.’ The order stops creditors from pursuing debts and freezes your property and assets to allow the bankruptcy court to start sorting out your assets and debt.
Since the hold is effective throughout the bankruptcy process it drags divorce proceedings if filed at the same time. A large part of the divorce process entails dividing assets between spouses. As such, with an automatic stay in place, it’s nearly impossible for the court to access or divide the assets.
Filing Bankruptcy First
You and your spouse can agree to file bankruptcy first. The idea is to allow the partners to share the filing fees and the cost of hiring a bankruptcy lawyer. Filing for bankruptcy before divorce also protects partners from paying a joint debt which is beneficial if the partners own property together.
Filing for Divorce First
This option is ideal if the spouses’ cumulative income is too high to qualify for Chapter 7 Bankruptcy. Once divorced the spouses can file for bankruptcy individually as their separate incomes may pass the means test. Proper planning also helps remove some assets from the bankruptcy attorneys’ custody. For example, if one of the partners was awarded a house after a divorce, proper title transfer and judgment should protect them from creditors. While at it be sure to follow the right legal process because a bankruptcy trustee can undo illegal transfers using clawback procedures.
Making a Joint Petition
If you’ve decided to file bankruptcy before getting divorced it’d make more sense if you submitted a joint petition. This means the divorcing couple agrees to file bankruptcy together saving them the cost associated with filing individually. Also, the bankruptcy charge eliminates any qualifying debt the couple may have, thereby reducing the issues to be handled during divorce proceedings.
In addition, some jurisdictions allow double exemptions on the assets. Since exemption laws vary from one district to another, it’s crucial to consult a bankruptcy attorney to help you weigh your options. If one of the spouses needs bankruptcy protection urgently, they should approach bankruptcy attorneys and file the petition.
How to File for Bankruptcy
Many bankruptcy lawyers recommend making a petition under Chapter 7 bankruptcy. This is a liquidation bankruptcy for getting rid of unsecured debts like medical bills and credit card debt. Also, Chapter 7 bankruptcy filing eliminates dischargeable debt within 3-6 months allowing spouses to file divorce sooner. By comparison, Chapter 13 provides a 3-5-year payment plan instead of discharging debt dragging the divorce process longer.
There’s a caveat to filing bankruptcy under Chapter 7- the spouses’ incomes should be lower than the state’s median income (stipulated in Chapter 7 Bankruptcy Means Test ). If their incomes are higher, the spouses must wait to file for bankruptcy after divorce. However, if the spouses have separated and are living apart and one of them files for bankruptcy, they can deduct household expenses for both apartments to reduce income.
Now you know the best time to file for bankruptcy and divorce. It’s essential to consult bankruptcy attorneys throughout the process as it can get incredibly complicated.