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Bankruptcy and divorce

The bankruptcy process isn’t always cut and dried. Certain factors may apply that can complicate the situation, such as divorce. Before filing any paperwork in either family court or bankruptcy court, talk to an attorney who handles bankruptcy cases. You and your spouse will need to decide which type of petition to file first.

Why You Shouldn’t Overlap Bankruptcy and Divorce

Bankruptcy and divorce both involve complex financial matters. During a divorce, decisions must be made about the division of marital assets and debts. If you file for bankruptcy while a divorce is pending, the automatic stay that goes into effect with the opening of a bankruptcy case will halt the division of assets. The resulting delay can make the divorce proceeding drag on for a long time. If you file for Chapter 13 bankruptcy, the bankruptcy court may need to grant permission for the division of assets. And if you file for Chapter 7 bankruptcy, the trustee will take longer to review exempt and nonexempt assets.

When to File for Bankruptcy First

Although every debtor’s situation is unique, lawyers usually recommend filing for bankruptcy before divorce. Filing jointly with your spouse will save time and money, since there will only be one filing fee, meeting of creditors, and set of documents and schedules. Filing for bankruptcy first also eliminates your liability for discharged debts. For example, let’s say you and your spouse have $10,000 in credit card debt. A divorce court may order each of you to pay $5,000. If you file for bankruptcy after divorce, your portion of this debt will be eliminated, but if your ex-spouse doesn’t pay the $5,000, you’re still liable for that portion. The creditor is not bound to honor the divorce settlement.

When to File for Divorce First

One of the few reasons why it might make more sense to file for divorce first is if you want to file for Chapter 7 bankruptcy. If your combined household income is too high to qualify, divorcing first and filing as a solitary petitioner might make more sense. Another possible reason to wait to file for bankruptcy is if you or your spouse has already filed a divorce petition.

For the answers to all of your bankruptcy-related questions, you can put your trust in the team at Cutler & Associates, Ltd. Call us today at (847) 961-4572, and request a free case evaluation with one of our experienced attorneys. Our law firm serves individuals and couples throughout the Chicagoland area, including Schaumburg and Arlington Heights.