First comes love, then comes marriage, then comes debt … At least, for many people it works that way. Money-related conflicts are the number one reason for divorce, so it comes as no surprise that many people who want to file for divorce also need to file for bankruptcy. But, which should come first?
According to Experian, trying to juggle both divorce and bankruptcy simultaneously may make your situation more complicated than it has to be. For simplicity’s sake, you should consider filing and completing your divorce before you tackle bankruptcy. However, in certain circumstances, it may make more sense to do the opposite — complete your bankruptcy before filing for divorce.
When it makes sense to file for divorce first
The main case for filing for divorce before bankruptcy is that, by reducing your sources of income to just one, you may be able to qualify for Chapter 7 bankruptcy. Chapter 7 bankruptcy allows you to discharge your debts entirely. However, in Chapter 13, the bankruptcy courts will restructure your debts and create a repayment plan of between three and five years long.
To qualify for Chapter 7, your income must fall below a certain median for your state. If you and your spouse earn “too much” together, it may make sense for you get divorced first and then file for bankruptcy later.
When it makes sense to file for bankruptcy first
If you and your spouse qualify for Chapter 7 together, it may make sense to file for bankruptcy first. In doing so, you can cancel most or all marital debts, thereby making the whole division of property process easier. It can also reduce the legal fees between the two of you and reduce the amount of time you both spend in court. In many states, filing for bankruptcy as a couple also allows you to keep a larger portion of your assets.
If you and your spouse make too much to qualify for Chapter 7, you may have to file for Chapter 13. This would require ongoing cooperation between the two of you until you complete the repayment plan.