Why File Bankruptcy Before a Divorce

October 29, 2012

Often when couples face divorce there is a painful split of finances. In some cases it makes sense to file a bankruptcy along with the divorce. But which should be filed first, the bankruptcy or the divorce? The prevailing legal wisdom is that the parties are better off filing a joint bankruptcy and receiving a discharge before filing their divorce.

The first obvious reason to file a bankruptcy before a divorce is that both husband and wife can file a joint bankruptcy petition and conserve bankruptcy costs. After a divorce the parties can no longer file together and must pay two filing fees, hire two attorneys, and file two separate cases.

Second, a joint bankruptcy case will allow the parties to account for all assets and debts and have their finances reorganized before heading to divorce court. This will save time and costs during the divorce. In cases where poor finances caused the marital trouble, straightening out the financial trouble may be enough to save the marriage!

Third, the bankruptcy court can discharge many joint and individual debts. Since there will be fewer debts after the bankruptcy, it is easier for the family court to allocate debt obligations during the divorce. While a family court’s order will assign the responsibility to pay a marital debt to a party, it cannot relieve the other parties’ obligation to pay a joint debt. The simple explanation is that the family court judge does not have the authority to rewrite a contract between you, your spouse, and a creditor who is not a party to your divorce. If your spouse does not pay the joint debt, your credit may be harmed. A bankruptcy discharge will finally terminate any legal obligation on a joint debt, and eliminate future problems that may arise if your spouse does not pay.

Finally, most couples should file bankruptcy before a divorce because it alleviates the financial strain. Separating from one household into two means adding expenses that will eat away at each individual’s finances. Getting rid of debt helps lift that burden. Additionally, it uncomplicates debt issues during the divorce and makes it possible to afford the important things, like groceries, child support, or a car payment.

If you and your spouse are considering divorce, consult with an experienced bankruptcy attorney and have your finances examined. If bankruptcy is a possibility, it is generally better to proceed with the bankruptcy case prior to the divorce.

 

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