While there are different causes of divorce, one of the major factors underlying marital turmoil is money problems, whether from unemployment, a disability, medical bills, a gambling addiction, or uncontrolled spending. Often, arguments over finances lead to divorce and bankruptcy.
If you are planning on filing divorce and bankruptcy, you may be confused about which one to file first. The right answer may depend on your income, assets, the type of bankruptcy you wish to file, and the types of debts that you have.
Joint vs. Individual Petitions
Debtors can file bankruptcy cases as individuals or married couples. When you file together as a married couple, it’s called a “joint petition.” The advantage of filing jointly is you save money on filing fees. It simply costs less to file bankruptcy together than it does to do it separately.
Chapter 7 or Chapter 13 Bankruptcy?
A Chapter 7 bankruptcy erases all of the debtors’ unsecured debts, such as credit card debt, medical bills, old tax debts, and personal loans. Since it typically only takes a few months to complete, it can easily be done before filing for divorce. This can be ideal if you have a lot of credit card debt; however, if you earn too much as a married couple, you may not qualify for a Chapter 7.
In contrast, with a Chapter 13 bankruptcy, debtors typically enter into a 3 to 5-year repayment plan where they pay all or a portion of their debt back over the life of the repayment plan. With a Chapter 13, the monthly payment depends on the debtors’ disposable income after all of their monthly bills are paid.
If an individual or a couple does not qualify for a Chapter 7, they may have no choice but to file a Chapter 13. That said, if you are planning on filing a Chapter 13, you may prefer to file individually after the divorce is final because it can take up to five years to successfully complete.
Benefits of a Chapter 7 Before Divorce
If you and your spouse qualify for a Chapter 7, you may want to consider filing it before the divorce. This is because it makes debt division during the divorce process a lot less complicated.
If you are contemplating divorce and bankruptcy, we encourage you to speak with a Cypress attorney for advice on which should come first in your particular circumstances.