Divorce can be messy. Bankruptcy cleans up messes. But whether you should file bankruptcy or divorce first depends on your specific circumstances.
In some cases, filing bankruptcy before divorce makes sense. In other cases, filing bankruptcy before the finalization of a divorce and the division of property can be a big mistake. If your marriage is coming to an end and you or your spouse is considering filing bankruptcy, talk to an experienced bankruptcy lawyer to discuss your options.
To file bankruptcy together, you must still be married
Only married couples may file a joint bankruptcy case. Divorced couples cannot file bankruptcy together. Filing a joint case can save you thousands in fees and may serve as an appropriate coda to the marriage. In many cases, a divorce will make it more difficult for individual spouses to pass the bankruptcy means test.
At the same time, married spouses can also file individually. There are many situations where filing individually makes more sense than filing jointly. Marital dissolution agreements may not prohibit a divorced spouse from filing bankruptcy.
Cooperation is key in bankruptcy
If you and your spouse are both still able to make rational financial decisions together, your chances of successfully navigating the bankruptcy process increase dramatically. Filing bankruptcy together may not be possible if you are unable to cooperate on your case.
Go ahead and fight it out
If your divorce turns contentious, you should most likely put the bankruptcy on hold and focus on the divorce. You will want to discuss certain bankruptcy considerations with your divorce attorney, however, if you see a bankruptcy in your future.
For instance, whether debts are characterized as a “property division” or as “support” makes a big difference in how those debts are treated in a later bankruptcy. Attorneys fees, guardian ad litem fees, and mortgage payments for an ex-spouse’s residence may all be characterized as support. An ex-spouse can discharge property division obligations, but not support payments. Child support payments are also excepted from discharge. Bankruptcy does not halt civil actions concerning the establishment of paternity, child custody, or visitation.
Timing can create issues, too. For instance, a debtor can lose the real property bankruptcy exemption for tenancy by the entirety if the final divorce decree is entered within six months of the bankruptcy. To varying degrees, Virginia, Maryland, and D.C. all protect spousal and child support from creditor actions.
Talk to a bankruptcy lawyer serving VA, MD, and DC
Talk to a lawyer on whether you should file bankruptcy or divorce first. Your assets, income, family structure, and relationship with your spouse all factor into whether you should file bankruptcy or divorce first. Lee Legal serves bankruptcy clients in Virginia, Maryland and the District of Columbia.