Should You Declare Bankruptcy Now Or After Your Divorce?

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Should You Declare Bankruptcy Now Or After Your Divorce?

2 February 2015
 Categories: , Blog

Many people take a huge financial hit when they get divorced, and if you are already overwhelmed with debts, this fact can seem very scary. Luckily, you can file bankruptcy to alleviate some of this stress and fear, but first you need to decide if you should file before you get your divorce or immediately afterwards. Wondering which time frame you should embrace? Let these questions guide you:

1. Are the debts in both of your names?

If your debts are in both of your names, filing for bankruptcy before you get divorced erases those shared obligations. However, if your debts are only in your name, you may want to wait until after the divorce to address them. In some cases, it may be easier to go through the bankruptcy once your assets are split and you have a clear sense of your new household's income level.

2. Will you be insolvent after the divorce?

After a divorce, the average woman experiences a 73 percent reduction in her standard of living. A reduction of that magnitude can make it impossible for you to pay your bills, but it may also mean that your creditors have no recourse to garnish your wages or claim your assets. Whether you are male or female, if you anticipate facing insolvency after the divorce, you may not need to declare bankruptcy at all.

3. Are you considering a Chapter 7 or Chapter 13 bankruptcy?

In a Chapter 7 bankruptcy, your eligible debts are erased relatively quickly, and the entire process only takes a few weeks or a few months. Chapter 13 bankruptcy, in contrast, can take three to five years, and because of that, it is not ideal for most people who want to get a divorce. During that time period, you have to make repayments to your creditors. If you dive into a Chapter 13 bankruptcy with your spouse before your divorce, you will have the burden of continuing the process for years after your divorce.

4. Do projected post-divorce income shifts make you eligible to avoid repayment requirements?

Chapter 13 is often called the wage earner's bankruptcy. Before deciding when to declare bankruptcy, have a bankruptcy attorney crunch some numbers for you. If your marital income is too high, you may be forced to file Chapter 13 and make payments to your creditors. However, if you wait until after the divorce when your income is reduced, you may qualify for Chapter 7 instead.

5. Do you want to save money on the cost of filing bankruptcy?

The fee for filing bankruptcy is the same whether you are filing as a single person or as a divorced couple. If you want to lower your bankruptcy costs and these other issues do not apply to you, you should file before you get divorced.

Talk to local law firms such as Legal Clinic Of Jerry Paeth to get a better sense of when you should act depending on your personal circumstances.