Helping You Resolve Difficult Issues In Family Law

Bankruptcy: Before or after divorce?

On Behalf of | Apr 21, 2021 | Divorce

Bankruptcy is a very serious personal decision for Arizonans who feel the need for legal financial protection at any given time. But what if that time is also at the time of a looming divorce? This compounds both legal issues significantly, and both spouses will have a central interest in how the process will play out. This is especially true when a Chapter 13 petition is a possibility because there will be a repayment plan for outstanding debt. The decision ultimately comes down to deciding whether to file before or after the divorce is final. Here are a few issues for every divorcing couple to consider.

Advantages of filing bankruptcy first

One of the primary elements of a divorce proceeding is dividing financial assets and liabilities. Removing as many liabilities as possible can make the divorce mediation much easier and even save money in the long run due to the time it takes to finalize both legal actions. This can be an advantage in some divorces because all discharged debts are removed from evaluation. Divorcing couples tend to focus on dividing assets as opposed to being responsible for leftover debt, and filing bankruptcy first can help in certain instances.

Advantages of filing for divorce first

There are other situations where it can be best to wait until after a divorce is final, and especially when one spouse earns much less income and can qualify for a Chapter 7 bankruptcy debt discharge. While there will surely be credit restrictions after the bankruptcy filing, this step first avoids the lesser earning spouse being responsible for any portion of a Chapter 13 debt restructuring payment plan. The goals of filing bankruptcy are different in the two chapters, and a Chapter 13 repayment obligation can have a severe negative impact on a spouse with low income potential following a divorce finalization.

While it is not required to have legal counsel when filing either bankruptcy or divorce, both legal actions can have significant long-term impact on life going forward. And the filings can clearly be complicated. Always retain an experienced attorney who understands both proceedings and how negative results can be avoided by the order of legal filing.