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Filing for bankruptcy is the most effective way of obtaining debt relief, but if your marriage is in trouble, it may be necessary to plan out how you handle these events. A divorce can affect the outcome of bankruptcy just as bankruptcy can affect a divorce settlement. Below, learn how these two actions affect one another so that you can make a choice that’s best for you and your spouse.

What Happens When You File for Bankruptcy First?

If you choose to pursue debt relief before getting divorced, you and your spouse will have to be able to work together for a longer period of time. You will have to file jointly through a bankruptcy attorney to ensure creditors won’t pursue one spouse for the other’s debts. In a joint bankruptcy, each spouse will provide the attorney with a list of their assets and debts, so the petition submitted to the court will be accurate and complete.

The advantage of filing jointly is that unsecured debts held by each spouse will be discharged in the bankruptcy. In addition to reducing your debts, this will also make it easier to reach a divorce settlement. Since there will be fewer debts, dividing those financial obligations between you and your spouse won’t be as complicated. 

What Happens When You File for Divorce First? 

Debt ReliefIn some situations, it may be more beneficial to get divorced first and file for bankruptcy separately at a later date. While married, you may not meet the means test for a chapter 7 bankruptcy, which will compel you to file a more restrictive chapter 11 bankruptcy.

However, filing separately will lower your household income level, and that may be enough to qualify you for a chapter 7. This provides a better measure of asset protection, which may make the wait more worthwhile. This can be done by transferring certain assets, such as a primary residence, to the other spouse. A legally executed title transfer will protect the home from being claimed by the bankruptcy trustee.

You may also want to file for divorce first in cases where you will be paying spousal or child support. You can take these payments into account as you work with your bankruptcy attorney to draft a debt repayment plan. This will keep you from unexpectedly overextending your financial obligations. 

 

Once you decide which option is best for you, consult an attorney experienced with debt relief as early as possible. Even if you plan to wait, C. Roland Krueger Attorney and Counselor at Law in Lexington, NC, can help you prepare for the bankruptcy. Their legal team will work with you every step of the way to help you manage your financial responsibilities more effectively. They are backed by 40 years of experience, providing the trusted and personalized legal services you need. To schedule a consultation, visit their website or call (336) 248-8464.

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