Often times money troubles come hand-in-hand with marital and divorce troubles. Not only is the process often expensive, but you are often facing a future with half or less of the household income you were accustomed to living on. With this change in circumstances, it is not surprising that sometimes debt starts to become overwhelming and you might be considering bankruptcy.
If you or your spouse files bankruptcy after filing for divorce but before the divorce is finalized, he or she becomes a debtor under the Bankruptcy Code and an automatic stay is created to make sure no property is transferred or debts are collected. The automatic stay will cause a temporary standstill in the divorce proceedings as to division of property and debts.
If your divorce is finalized before your bankruptcy proceeding is opened the debtor filing can often benefit by knowing a set income and debt level. By divorcing first, you can include support considerations, such as the amount you will owe or receive per month, then it will help to know that amount before the bankruptcy. Specifically if you are filing for a Chapter 13, the support can affect how your bankruptcy will proceed as it involves creating a bankruptcy repayment plan based on income. If you file the divorce first and agree to be responsible for any jointly held credit cards, your bankruptcy would not eliminate your responsibility to pay on that jointly held account. Your spouse could still force you to pay even after you complete the bankruptcy because of the divorce decree.
If the divorce is finalized and then your ex-spouse files for bankruptcy, you could receive limited protection from the terms of your divorce decree. For example if your ex-spouse was ordered in the divorce to pay a joint credit card and they file for bankruptcy, then the creditor can come after you to collect it because it was a joint credit card. However if you pay the debt, you have a right to be reimbursed by your ex-spouse because they violated the divorce decree by not paying the joint debt. Bankruptcy discharges their obligation to pay the creditor not their obligations to you under the terms of your divorce decree.
If your bankruptcy is finalized before you file for divorce there may be some complications based on how you filed your bankruptcy. If both you and your spouse filed jointly, all your joint debts should be discharged and you can both not concern yourself with those debts, or with including them in your divorce sharing of the debts and assets. If only one spouse files bankruptcy before the divorce, the filing spouse is no longer liable on their portion of the joint liability of the debt and cannot be forced to agree to pay it in a property settlement. If the couple divorces after one spouse has filed bankruptcy, the non-filing spouse will become re-liable for all the debts that had both of their names because even after you separate, you are still responsible for your spouse’s debts on accounts that have your name.
If you are considering filing jointly for bankruptcy before you divorce you should consider a few things. First, if you only qualify for a Chapter 13 bankruptcy, you might consider divorce first because of how long the bankruptcy will take. This type of bankruptcy lasts three to five years and can delay your divorce or separation longer than necessary. Second, you are relying on your spouse to cooperate and produce documents as well as make appearances so you will need to be in a friendly relationship if you are interested in filing together.