What Should Happen First? Divorce Or Bankruptcy

Divorcing couples who are also contemplating filing for bankruptcy are not that uncommon. Often financial problems lead to divorce, so proceeding with these two major life events at the same time often makes sense. When it comes to the timing of these two legal maneuvers, however, what you do first matters quite a bit. Read on to learn more about which should be done first and why.

Dealing with debt

This is often an issue of major contention, but if you file for a chapter 7 bankruptcy before you divorce, the amount of marital debt in play could be reduced considerably, if not totally eliminated. Particularly for those that have a great deal of credit card debt, a bankruptcy filing makes a large chunk of a divisive issue simply disappear.

Credit card debt falls into the "unsecured" debt bucket when it comes to bankruptcy, which usually means that it is completely forgiven with no loss of associated property. Proceed more carefully if you carry a lot of secured debt. Since this debt is connected to a possible loss of property, which could effect a potential divorce settlement, use caution and discuss the outcome with your bankruptcy attorney before filing.

Double exemptions

Another possible reason for filing for bankruptcy first is the potential to use a doubled exemption for property. Exemptions are important when it comes to bankruptcy; they reduce the value of a given piece of property which could make it more likely that you won't lose it. For married couples, some states allow you to double your bankruptcy exemptions. Keep in mind that you must file for bankruptcy jointly to get the benefit from this perk.

The means test

This "test" is actually a calculation of you and your spouse's income and a comparison to the median income in your state. This determination came about as a way to prevent high-earning people from declaring bankruptcy, and if your income exceeds your state's median, you may be barred from filing for chapter 7. Even if you are filing as a single person, if you are still married, you must include the income of your spouse on the means test. If together you have a high income, it could be in your best interest to wait until you are divorced to file for bankruptcy, since only your income would be counted, especially if your spouse's income is quite a bit more than the state's median.

Accomplishing both legal procedures in the same period of time can be complicated. To learn more about the pros and cons of what should come first, consult with both a bankruptcy and divorce attorney. Check out the site for more information.

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