Three people sitting at a desk going over paperwork

Bankruptcy & Divorce: What You Need to Know

Bond Law Office
April 27, 2022

Bankruptcy and divorce share a common feature. With both of them, you get a fresh beginning that opens the door to a new chapter of your life. The fresh start can’t be overstated. It can be a lifesaver for a lot of people.

If you are considering divorce and bankruptcy, or if you have started the divorce process, you do need to know how one affects the other and in what order you should take these measures. Bond Law Office can help you.

In fact, we have been helping clients in Fayetteville, Fort Smith, Harrison, Eureka Springs, Clarksville, Waldron, Mena, Van Buren, and throughout the Arkansas River Valley, navigate bankruptcy while they were contemplating or getting a divorce for 30 years.

Should We File for Bankruptcy Jointly?

If you and your spouse can meet the income and debt requirements to file for Chapter 7 bankruptcy, there may be some distinct advantages to filing bankruptcy jointly.

A Chapter 7 bankruptcy eliminates all dischargeable debt within a few months of filing and the case is closed. Filing bankruptcy jointly will cost less overall than filing separately because you will pay only one filing fee. You may only need one bankruptcy attorney as well, so long as there is no conflict of interest in the divorce.

Having both of your debts discharged before filing for divorce means you will not need to address that debt during the divorce and that may save you time and money. Filing jointly may also allow you to double the exemptions allowed in bankruptcy, which is to your advantage.

If you don’t qualify as a couple for Chapter 7, you will need to file for Chapter 13 bankruptcy. Debts are not discharged in Chapter 13 but rather, restructured in a more affordable repayment plan over a three- to five-year period. You can see how filing a Chapter 13 bankruptcy jointly may be problematic since the debt will need to be repaid after the divorce is final.

Should We File Bankruptcy Separately?

Not all debt is marital debt, which means one spouse may need to file for bankruptcy protection right away while the other spouse does not. In that case, it may make sense to file separately. Moreover, because there will be a difference in each spouse’s income following divorce, one or both may meet the Chapter 7 eligibility requirements after divorce in separate filings.

You should also note that a spouse filing bankruptcy separately will not impact the credit score of the non-filing spouse.

Which Do I File First?

When you are filing for both divorce and bankruptcy, which one to file first is a good question to ask. If the debt is marital debt and you qualify for Chapter 7 bankruptcy, filing for bankruptcy first may be the best choice.

If you are facing a Chapter 13 bankruptcy, it might be less complicated to wait until the divorce is final before you file singly. Another consideration is the obligation the spouse who doesn’t file for bankruptcy may face. For example, if your spouse files for Chapter 7 bankruptcy after the divorce to discharge debt, that bankruptcy does not release you from the obligations of repaying creditors if it was marital debt, even if it was debt your spouse agreed to satisfy in the marital division agreement.

It’s best to figure out which one to file first rather than file for both at the same time. It is likely that the bankruptcy case will be put on hold until the divorce is final.

How Does Bankruptcy Affect Asset Division in Divorce?

The division of marital debt is often a contentious part of divorce. The less there is to divide, the less litigious the division will be. However, as you have seen, it is complicated, and not all debt is dischargeable in bankruptcy. You will benefit from talking to a bankruptcy attorney about the implications of asset division and bankruptcy in your particular case.

What Debts Are Discharged in Bankruptcy?

Discharge of debt in Chapter 7 bankruptcy includes such items as credit card and medical debt, unsecured loans, and unpaid utility bills. Secured debt balances on your car or home can also be discharged, but you surrender them to do so.

Debts that aren’t discharged include items such as child support, alimony, and most taxes. Those obligations must be paid regardless of bankruptcy.

How Bond Law Office Can Help

Divorce and bankruptcy are complicated issues on their own. In tandem, they are extremely complex. That is why consulting with a bankruptcy attorney before you file anything is a wise choice.

Both legal issues offer an opportunity for a new beginning but if do them incorrectly, it could be a rocky start. At Bond Law Office, we help clients in Fort Smith, Fayetteville, and throughout the Arkansas River Valley, as they navigate the bankruptcy process, which will also protect their interests in divorce.

Call Bond Law Office now to talk about your future. We are ready to help.