Divorce and Bankruptcy


Divorce and bankruptcy can each create a difficult time in a person's life. Unfortunately for some couples, financial problems are what lead them to divorce. While an impending bankruptcy and divorce can seem very overwhelming, there are a few things to know to help ease the process.

First you will want to decide which comes first. For most people, filing for bankruptcy together works best for them. You and your partner got into financial trouble together, so you should get out of it together. Filing for bankruptcy before divorcing can actually help simplify divorce by settling how the remaining debts will be divided. Also, since you will file together, you will be saving money on one case versus two.

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Most importantly, filing for bankruptcy first can protect you from your partner filing later and pulling you back in. Unfortunately divorce tends to leave unsettled and even bitter feelings, so handling your finances first makes sense. It also helps to have bankruptcy out of the way so both your finances and relationship can be a part of the past after your divorce.

When filing for bankruptcy before divorce your community property becomes part of the bankruptcy estate and can be used to pay your debts. From there the court decides which property is exempt from paying your debts and the divorce court will then divide the property. Property exemptions are set by both federal and state law, so you will need to ask your attorney what property will be safe. In most cases it will include your home (up to a certain amount) an amount for your primary car and some of your household goods and clothing.

There are some reasons a couple would want to file for bankruptcy after the divorce. By filing together both your spouse's and your own income will be used in the calculation of the means test. The means test will determine if you are eligible for Chapter 7 bankruptcy. If your combined income is too much and you are seeking a Chapter 7 bankruptcy then you will need to wait until you are divorced and can file as an individual.

In some cases your ex can use this filing for bankruptcy after divorce to avoid living up to the divorce decree. Luckily the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was created to help ensure your spousal support and child support payments will be paid. This Act places the highest priority on payment of support, above all other creditors and even unpaid taxes.

If you're planning for bankruptcy and possibly divorce make sure to contact a Rio Grande Valley bankruptcy lawyer who can help walk you through the process.


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