Bankruptcy and Divorce

Divorce and bankruptcy are both extraordinarily difficult and stressful situations to experience; doing so at the same time is even more complicated. Aside from the emotional strain, there are some very pragmatic factors that must be considered. In this post, we will explore the implications of divorce on bankruptcy.

Amicable or Acrimonious?

Before factoring in any of the financial or logistical matters, you must evaluate honestly the state of your relationship with your (soon to be ex) spouse. If you’re on amicable terms with your spouse, then filing for bankruptcy before a divorce could be a viable option. However, attempting to file bankruptcy with a spouse who is hostile to your financial interests could actually cause more harm than good. You will need to depend on your spouse to show up to court and provide all necessary financial documents, and you need to be confident that they will work with you and your attorney.

Chapter 7 Bankruptcy

Whether or not divorce is involved, deciding on what kind of bankruptcy to file is key. Chapter 7 bankruptcy is often chosen because it can be completed within four to six months and completely eliminates unsecured debt. However, in order to file for Chapter 7 bankruptcy, your income must be equal or below the median household income for your state. For Wisconsin, that’s $67,094 (as of 2020). If you and your spouse remain friendly, and you can file for Chapter 7 bankruptcy, then filing it before your divorce may be the best option. You can file jointly, discharge your debts, then divorce afterwards.

Chapter 13 Bankruptcy

If your income level is too high to qualify for Chapter 7 bankruptcy, you may file Chapter 13 bankruptcy. Chapter 13 functions more like a court-administered reorganization and it lasts from three to five years. If you divorce during that time, you will still be obligated to make the repayments ordered. If you and your spouse are friendly, perhaps you can agree on the portion of the repayment you will each do. If not, you may need to go through the process of having the bankruptcy case bifurcated. That may make the most sense; it’s possible that you may then be able to convert to a Chapter 7 bankruptcy.

Bankruptcy Costs

If you and your spouse file a joint bankruptcy you’ll save money on filing fees and the cost of hiring a lawyer. However, since your household income will be determined by what both you and your spouse earn, filing bankruptcy before your divorce could mean that your income is too high for Chapter 7 bankruptcy. In that case, divorcing first and then filing for bankruptcy would be the best idea.

Assets

Filing for bankruptcy jointly with your spouse brings advantages. One of the experts at Burr Law can help you understand how your assets will be protected. This applies, especially, to things you own jointly like your house or your vehicles. And depending on the jurisdiction you live in, filing a joint bankruptcy with your spouse could give you extra protection in the form of double exemptions. For example, if your home value is exempt up to $100,000 for a single bankruptcy filer, depending on the law in your jurisdiction, filing jointly could give you a bonus exemption making the house exempt for up to $200,000.

Bankruptcy and divorce are both unpleasant things that happen sometimes. Taking a pragmatic and rational approach to your situation is the best way to mitigate it. Contact the professionals at Burr Law to explore your options.