Bankruptcy and Divorce: Which Should I File for First?

Bankruptcy and divorce sometimes go hand in hand, and financial issues are often cited as a major cause of marital strain.  But if you’re considering filing for bankruptcy and divorce, which one should you address first?  Does the order really matter? There are several good reasons to file for bankruptcy prior to divorce — and vice versa.  It depends on factors such as your goals, your budget, and the chapter you are filing under.

When Should I File For Bankruptcy?

One of the biggest concerns where divorce and bankruptcy are interrelated is the timeline of the case. Chapter 7 bankruptcies take only a matter of months, which means you could feasibly file, quickly receive your discharge, and then “switch over” to filing for divorce.

By contrast, Chapter 13 takes far longer at three to five years — so if you want to wrap up your bankruptcy prior to getting divorced, you may have a very long wait ahead of you.  In that instance, it is probably more prudent to file for divorce prior to moving ahead with the bankruptcy.

Bankruptcy and Means Testing

Prior to filing for bankruptcy, you must take the Means Test to help determine which chapter is most appropriate for your budget.  If Means Testing determines that your income exceeds the median income for your state, you will not be permitted to use Chapter 7.  If your joint income as a couple puts you out of financial range, but you strongly prefer to file for Chapter 7, filing for divorce may help you to qualify.

Close-up of a bankruptcy petition

How Filing for Bankruptcy Can Save You Money in a Divorce

Depending on when and how you choose to file, you could potentially save some money on your bankruptcy.  If you are on good terms with your spouse and feel confident you will be able work together, you may want to consider filing jointly prior to parting ways.  This is the financial equivalent of killing two birds with one stone, because by filing jointly, you will not have to pay separate filing fees.  (Currently, the filing fee for Chapter 7 is $306, while the fee for Chapter 13 is $281.  These fees are subject to change, so be sure to stay updated.)

More significantly, you can also double your exemptions.  It should be noted that while this is not an option in every state, doubling is permitted in Pennsylvania and New Jersey.  Doubling exemptions is exactly what it sounds like: each spouse is allowed to claim the full exemption for the property that he or she owns.  You cannot double property you do not personally own (e.g. only one of you owns a vehicle).  For example, if you live in Pennsylvania and choose to double the federal homestead exemption, you could claim up to $43,250.

But while filing together can help save you money on bankruptcy, filing separately could help you save money on divorce.  Your bankruptcy case will address matters such as property, assets, and how they are divided, so if these matters have already been outlined by a trustee before you begin a divorce, the divorce itself can be that much smoother, quicker, and cheaper.

Our Pennsylvania Bankruptcy Attorneys Can Help You

Bankruptcy is a complex matter, and filing becomes even more complicated when divorce enters the picture.  If you’re thinking about filing for Chapter 7 or Chapter 13 in Pennsylvania or New Jersey, a bankruptcy lawyer at Young, Marr & Associates may be able to help. To schedule a completely free and confidential legal consultation, call our law offices at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania, or contact us online today.

Have You:

Been paying credit card balances that seem to never go down?

Lost your job and are now having trouble keeping up?

Attempted to work out a payment arrangement to no avail?

Been notified of a mortgage foreclosure action?

Been denied for a mortgage or other line of credit?

If the answer to any of these questions is “yes” then bankruptcy may be an option that you should consider.

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