One of the most common questions about bankruptcy is, “Can you file for bankruptcy during a divorce?” The short answer is yes, but there are several considerations to take into account before moving forward with both legal processes simultaneously. Understanding the potential advantages and complications can help you determine the best course of action for your financial future.

Bankruptcy and divorce: two separate legal processes

Bankruptcy and divorce are both complex legal matters, and while they may overlap in certain areas, they remain distinct processes. Bankruptcy is a federal legal procedure designed to help individuals eliminate or restructure debt, while divorce is a state-level legal process that involves the division of assets, liabilities, and determining responsibilities such as spousal or child support.

Most people do not realize that a spouse does not have to be included in or affected by a bankruptcy case. If one spouse chooses to file for bankruptcy, the other spouse’s credit and financial standing are not automatically impacted. However, if the couple shares joint debts, bankruptcy can influence how those debts are handled in the divorce.

Should you file for bankruptcy before or after divorce?

Deciding whether to file for bankruptcy before or after divorce depends on several factors, including the type of bankruptcy being considered, the financial situation of both spouses, and how debts and assets are structured.

Filing for bankruptcy before divorce

Filing for bankruptcy before finalizing a divorce can simplify the division of debts. This is because bankruptcy can discharge certain unsecured debts, such as credit card balances and medical bills, reducing the financial burdens that need to be divided between spouses.

    Filing for Chapter 7 bankruptcy before divorce: Chapter 7 bankruptcy is a liquidation process that typically takes a few months to complete. It allows individuals to eliminate most unsecured debts, which can make the divorce process easier by reducing the financial obligations that must be allocated. If both spouses qualify for Chapter 7, they may be able to file a joint bankruptcy, eliminating shared debts before divorce proceedings begin.
  • Filing for Chapter 13 bankruptcy before divorce: Chapter 13 bankruptcy involves a repayment plan that lasts from three to five years. If a couple files jointly before a divorce, they will need to cooperate throughout the repayment period, which can be challenging for couples who are separating. If one spouse files individually, the shared debts may still need to be addressed in the divorce.

Filing for bankruptcy after divorce

If a couple chooses to proceed with divorce first, bankruptcy can still be filed afterward. This option may be beneficial for those who do not want to navigate two legal processes at once.

  • Filing for Chapter 7 bankruptcy after divorce: If an individual qualifies for Chapter 7 after the divorce is finalized, they may find it easier to manage since their income is calculated based on their individual earnings rather than joint household income. However, any debts assigned during the divorce remain the responsibility of the individual, and bankruptcy does not discharge obligations such as alimony or child support.
  • Filing for Chapter 13 bankruptcy after divorce: If an individual needs to reorganize debts post-divorce, Chapter 13 may provide a structured repayment plan. Filing after divorce allows an individual to address financial obligations independently without needing cooperation from a former spouse.

How bankruptcy affects joint debts in divorce

One of the most significant concerns in filing for bankruptcy during a divorce is the treatment of joint debts. Even if a divorce decree assigns certain debts to one spouse, creditors are not bound by that decree. If both spouses are co-signers on a debt, the creditor may still attempt to collect from the other spouse if one files for bankruptcy. Filing a joint bankruptcy before the divorce will prevent future debt collection actions against either spouse. If only one spouse files for bankruptcy and discharges debts, the remaining obligations may shift to the other spouse. It is also important to understand that the property exemptions granted through bankruptcy laws may affect which assets are retained by the individual filing.

Factors to consider when filing for bankruptcy during divorce

If filing for bankruptcy and going through a divorce at the same time is necessary, there are several factors to evaluate:

  1. Income and qualification: If both spouses have a high combined income, they may not qualify for Chapter 7 bankruptcy together, but one spouse might qualify individually after divorce.
  2. Cooperation between spouses: If the divorce is contentious, managing a joint bankruptcy may be difficult. If both parties can cooperate, filing bankruptcy together before divorce may be a strategic option.
  3. Asset protection: Understanding how bankruptcy exemptions work in Texas can help protect assets such as a home, retirement accounts, and vehicles.
  4. Legal costs and timelines: Filing for bankruptcy and divorce simultaneously can potentially increase legal complexity and costs. It is important to work with an experienced bankruptcy attorney who can help you make the right decision for your situation.

Navigating bankruptcy and divorce simultaneously requires careful planning. If you are unsure whether to file for bankruptcy before, during, or after your divorce, consulting an experienced bankruptcy attorney is essential. An attorney can evaluate your financial situation, assess your debt obligations, and determine the best course of action based on your specific needs.

At Rubin & Associates, we work with individuals and families in the Dallas, Texas, metro area to provide expert guidance through bankruptcy proceedings. If you are struggling with debt and considering bankruptcy while going through a divorce, we are here to help. Call us today at 214-760-7777 to schedule a free consultation and discuss the best path forward for your financial future.