Bankruptcy In Divorce

: Chris Lee Law Firm

  Filed under: Divorce

Bankruptcy In DivorceWhen a couple decides to file for bankruptcy, there are several things to consider about when is the best time to file. Filing for bankruptcy before a divorce can often make the process much easier than filing after a divorce. In a divorce, assets must be divided and shared debts must be managed. There are many differences in bankruptcy laws per state and filing together or separate could be affected by these differences.

Bankruptcy Before Divorce

The transition into a divorce is much easier on a couple if they have reconciled their bankruptcy while they were still legally married. As a couple, filing together or separate can also impact the outcome of your bankruptcy case.  There are many advantages in filing separately in marriage. You can file your own bankruptcy from your spouse, or one spouse may be the only one to file.  One advantage of filing separate from a spouse is to protect the credit standing of the non-filing spouse. This is particularly helpful if one spouse accumulated the majority of the debt.  However, if you receive a discharge on a debt, the non-filing spouse may still be held liable for any shared debts.

Filing together may be the better option if there are more shared debts than individual debts in a marriage. Shared debts, or debts accumulated on joint accounts, that are discharged in bankruptcy will release both individuals from liability of those debts. Also, shared assets may be better protected under exemption laws when filing together. One disadvantage to filing together is whether the combined incomes are high enough to disqualify them from eligibility for bankruptcy protection.

Bankruptcy After Divorce

The biggest issue in filing after a divorce is regarding how debts are managed and the possession of assets.  Debts accumulated on joint accounts during marriage are handled similarly in bankruptcy as in filing separately in marriage. The non-filing spouse may still be held liable for the debt if the filing spouse receives a discharge. It will be more difficult to satisfy the creditor if they know there is still one spouse that did not receive a discharge and can be held solely responsible for repaying the debt.

Most assets are divided in the divorce process and each spouse may take possession of certain assets. If you file for bankruptcy and the court allows for a particular asset to be liquidated in order to satisfy your debt, that asset can be taken from the non-filing spouse. There is no protection for assets that are in a non-filing member’s possession and any of the assets that were shared in marriage may be at risk for seizure during bankruptcy.


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