THE MARRIAGE OF BANKRUPTCY AND DIVORCE
How Does divorce and bankruptcy effect each other?
Which comes first is a complex question. One that you should seek professional advice for. In Pennsylvania, when you get married, all assets and debts acquired during the marriage are considered marital. Which mean each spouse shares in the asset or debt regardless of who’s name is on it. If you file bankruptcy, individually, before you are divorced, your spouse could still have the obligation to the debts if they co-signed.
If you and your spouse are getting along then there are numerous benefits to filing bankruptcy first:
- By filing jointly, all debts will be addressed under one bankruptcy case.
- You can wipe out your joint debts together and may also be able to increase your exemption amounts. This is also helpful if one spouse makes all the money because it will increase the chance of qualifying for a Chapter 7 for that spouse.
- Bankruptcy will also eliminate contracts that neither one of you wants, like car loans that cost too much or mortgages on houses that are completely underwater.
- Eliminating these debts may help in resolving the Equitable Distribution portion of the divorce proceedings.
If you qualify for a Chapter 7, the process takes 90 days.
However, Chapter 13 bankruptcy proceedings are much more complicated and can leave both of you obligated to payments for 36 to 60 months.
After the bankruptcy is completed, then divorce will proceed without any further delay from bankruptcy.
Divorce first may make sense if:
- Your joint income is too high to qualify for Chapter 7 bankruptcy. For example, if you make significantly less than your spouse then you may be able to qualify for a Chapter 7 to get rid of debt in your name without a Chapter 13 payment plan.
- In some cases, both spouses may qualify for Chapter 7 bankruptcy individually after a divorce even if they could not do it jointly.
- Proper planning in a divorce may also move certain assets outside of the trustee’s influence. For example, if one spouse takes a house in the divorce, a proper judgment with the proper transfer of title/mortgage can protect the ex-spouse from your creditors.
- Finally, by divorcing first, it will allow for support considerations. For example, if you will owe a lot of support, then it will help to know that amount before the bankruptcy. Specifically, the support can affect how your bankruptcy will proceed. Nothing is worse than having a bankruptcy repayment plan based on income you do not have access to.
As we said before, the marriage of bankruptcy and divorce is a complicated discussion with many moving parts. Please join us of a free consultation.