Should You File for Bankruptcy Before a Divorce?
Going through a divorce is often a difficult and stressful process. Marriages collapse for various reasons, including financial problems. It is not uncommon for a divorce to leave both spouses in economic ruin. One of the main reasons for filing for bankruptcy is divorce. That begs the question, “is it better to file for bankruptcy before or after filing for divorce?” As with most legal questions, the answer is “it depends.”
Filing for bankruptcy should be a thoughtful and considered decision. Our Philadelphia bankruptcy attorneys will take the time to evaluate your unique situation. If you have a looming divorce, there are many factors you should consider regarding the timing of your bankruptcy filing. Below, we discuss some of these factors.
Filing for bankruptcy or divorce is never easy, yet often necessary. At Young, Marr, Mallis & Associates, our lawyers and staff are committed to helping our clients through their difficult times. To discuss your options and the benefits of filing for bankruptcy before or after a divorce, call (215) 701-6519 in Pennsylvania and (609) 755-3115 in New Jersey.
The Cost of Divorce and Bankruptcy
Legal representation costs money. Filing a joint bankruptcy before getting divorced could save a significant amount of legal fees. Typically, a joint filing is less expensive than two individual filings. However, if you plan to divorce, you need to let our Pennsylvania bankruptcy attorneys know of your intentions. It is possible, depending on your relationship, that there could be a conflict in representing both parties.
The Bankruptcy Chapter
When contemplating filing for bankruptcy, one of the first questions is, “what type of bankruptcy should I file?” Individuals and couples will usually file either a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 case is designed to quickly eliminate unsecured debt in a short period of time. However, you must qualify for Chapter 7. The benefit is that you and your spouse could discharge a significant amount of debt in a matter of months. Another advantage is the ability to take the marriage exemptions. For example, together, you and your spouse could protect more equity in a marital home than you could if you were divorced. In many cases, it is advisable to file a Chapter 7 bankruptcy and divorce later.
A Chapter 13 bankruptcy is a different story. Because it was designed to reorganize debt, a Chapter 13 case will last from three to five years. This means you and your spouse will be entangled in a legal proceeding for a considerable amount of time. If you divorce during your case, you will be required to have your case separated and potentially closed.
The Type of Debt
Another factor in determining if it is better to file for bankruptcy before or after a divorce is the type of debt. If the bulk of the debt is in your spouse’s name, you might not require bankruptcy. However, if there is shared debt, then filing a joint case might make more sense. If you and your spouse share credit card debt and divorce, the debt remains. Your spouse could then file for bankruptcy and leave you with the sole obligation to pay it back. Our Pennsylvania bankruptcy lawyers will thoroughly review your debt to determine who is legally liable under each account. Many married couples share credit cards, while others maintain separate accounts. Paying back taxes might be another reason why it is advantageous to file for bankruptcy before a divorce.
Your Household Income
Household income is the major factor used to determine if you are eligible to file a Chapter 7 case. As stated above, there is a financial benefit to filing jointly – you can save on legal fees. However, it is possible that your combined household income does not qualify for filing Chapter 7. If your spouse makes more money than you, it might be in your best interests to wait until after a divorce so you could qualify for Chapter 7.
Your Property and Assets
When you file a bankruptcy case, all your property and assets become part of the bankruptcy estate. Both state and federal laws provide exemptions that allow debtors to keep most, if not all, of their property. If you are married, some exemptions will double in amount. For example, a couple will have a larger exemption to apply to a vehicle or home.
In Pennsylvania, there is another benefit married couples share. In most cases, a married couple will own their home as “tenants by the entirety.” Therefore, a couple will own their home as a single entity. Under Pennsylvania law, a creditor does not have a claim against a home if a debt is only one spouse’s name. When you file for bankruptcy, your home is often your largest asset. If you have a small or no mortgage, you could not file a Chapter 7 and keep your house. However, if the debt is only in you or your spouse’s name, you could use the Pennsylvania exemptions to file a Chapter 7 and protect your home. After a divorce, the property will lose this designation. Before deciding you are not eligible for Chapter 7, speak with one of our Pennsylvania bankruptcy lawyers.
Your relationship is not great if you are planning on getting a divorce. However, divorcing couples could still be on amicable terms. Filing for bankruptcy is stressful and requires cooperation from both parties if you are filing jointly. You need to make an honest evaluation as to whether you and your spouse have the ability to navigate a bankruptcy together. Both individuals will have to work with our Bucks County bankruptcy attorneys, provide personal financial documents, and appear before the trustee or bankruptcy judge.
Call Our Experienced Bankruptcy Attorneys if You and Your Spouse are Getting a Divorce
Filing for bankruptcy before you and your spouse divorce could prove beneficial for both of you. Because every situation is unique, you should speak with one of our experienced Allentown bankruptcy lawyers. At Young, Marr, Mallis & Associates, our team of dedicated legal professionals will thoroughly evaluate your circumstances and offer our legal advice. In some ways, a divorce is a fresh start in life. To see if you could also have a fresh financial start as well, call our law offices at (215) 701-6519 in Pennsylvania and (609) 755-3115 in New Jersey.