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Factors That Determine Whether Divorce Should Precede orFollow Bankruptcy

On Behalf of | Feb 22, 2019 | Firm News |

If you want to divorce and file for bankruptcy, you may wonder which of the legal processes should precede the other. Your personal circumstances will dictate whether you should lead with one or the other. Here are some of the specific factors to evaluate before you decide.

Bankruptcy Chapter

Determine whether you want to file for Chapter 7 or 13 bankruptcy first. The answer should guide you in whether to file for divorce or bankruptcy first. Chapter 7 bankruptcy takes about three months, while Chapter 13 bankruptcy takes a couple of years or more to conclude, so a Chapter 7 bankruptcy makes sense if you want to divorce sooner rather than later.

However, both chapters have their pros and cons that you should consider as well. Note that Chapter 7 bankruptcy wipes out most of your general debts, but you only qualify for the chapter if your household income is low. If you have some assets or you are not a low-income earner, then you can take the Chapter 13 route. Your lawyer will go over the options with you and help you decide which chapter to file for.

The Means Test

The means test is an evaluation that determines whether you qualify for Chapter 7 bankruptcy. The government uses the means test to weed out moderate to high-income earners who should file for chapter 13 bankruptcies instead.

The means test compares your income to the median household (of the same size as yours) income in the state. You qualify for Chapter 7 bankruptcy if your income is less than the median household income. If your income is higher than the median household income, then the court evaluates your expenses. You can still qualify for Chapter 7 bankruptcy if your expenses are high.

If you file for Chapter 7 bankruptcy before the divorce, then the court will consider your combined income for the means test. If you file for bankruptcies after divorce, then the court will assess your households individually for the means test. As such, you have a high chance of qualifying for Chapter 7 if you divorce first (particularly if your combined income is relatively high).

The Cost of Filing

When you file for bankruptcy, you have to pay the court filing fees as well as the legal fees for your attorney. If you decide on bankruptcy before the divorce, you only have to pay each fee once. If you opt for bankruptcy after divorce, each household has to pay filing fees and legal costs.

As such, you should opt for bankruptcy before divorce if you are on a tight budget. You will save about half of the bankruptcy costs that way.

Divorce Issues and Speed

Before you decide on which case should take precedence, you also need to evaluate the number and complexity of issues you need your divorce court to handle. Some couples have relatively simple divorces because they agree on most of the issues and leave only a few thorny ones for the divorce judge.

Other couples have acrimonious divorces, and they can’t agree on anything and the judge has to decide on everything for them. If you belong to the latter category, then your divorce is likely to take a long time because you will litigate each issue in court. In such cases, you should consider bankruptcy after divorce because your divorce will last even longer if you opt for bankruptcy before the divorce.

Bankruptcy Exemptions

When you file for bankruptcy, the exception laws allow you to protect some of your properties and keep them out of reach of your creditors. Some states, such as Indiana, allow you to claim double exemptions if you are married and both of your names are on the assets you wish to exempt.

In such a case, you may end up with more exempt assets if you file for bankruptcy before divorce than if you divorce first. Again, a bankruptcy lawyer should evaluate your circumstances first to confirm whether you can benefit from double exemptions.

The Law Office of Travis Van Winkle handles both divorce and bankruptcy cases. As such, we are in a unique situation to analyze your case and advise you on which route to follow first. Contact us for an appointment as soon as possible so we can start work on your case.