Should I File for Divorce or Bankruptcy First?

Unfortunately, all too often, divorce and bankruptcy seem to go hand in hand. Financial problems are one of the commonly cited reasons for breaking up couples and families. Consequently, one of the most frequently asked client questions is, “Should I file for divorce or bankruptcy first?” If you plan ahead, you can ensure both will move more smoothly and be less costly. While the answer is ultimately based on your individual circumstances, it is always better to perform one before the other, rather than trying to file both simultaneously.

The key here is mainly about loans in which both parties are liable. For instance, let us presume there is a mortgage home loan. If you wait to file bankruptcy until after the divorce, late payments can build, causing a foreclosure. While filing bankruptcy will stop any action if there is still a balance owed after the property goes to auction, those late payments and the foreclosure will remain on your credit. The mortgage company does not care if the divorce agreement stipulates your ex-spouse was obligated to continue payments until the property sold.

In many instances, it is better to file bankruptcy first. This will provide you protection, reorganizing or discharging your debt. Once you have reduced or eliminated the majority of your debt, you can move forward with the divorce. However, the key to success is not re-establishing your liability. For example, if you had a joint credit card with your soon to be ex-spouse, do not re-establish responsibility outside of the divorce agreement. The court may make paying the debt a condition of your divorce, but this is a separate issue from accepting responsibility with the actual creditor.

Additionally, filing for bankruptcy jointly before a divorce can make things extremely uncomplicated. While filing individually is sometimes the best course, filing jointly can simplify the property division process when it comes time for the divorce. Keep in mind, filing bankruptcy during a divorce places an automatic stay on any property and will slow and complicate the process. Regardless, in most cases, the best course of action is to wipe out your liabilities first.

What haven’t we covered yet that is important to you? If you would like to talk about if you should file for divorce or bankruptcy first, or need more information, please contact us.

Harris Ammerman
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