Deciding whether to file for bankruptcy and considering divorce means you have numerous issues to resolve. While no two situations are alike, some basic facts always apply. Discussing these points with your spouse about managing finances and ending your marriage may help make wise choices.

What Impact Does Divorce Have if You File for Bankruptcy? 

Deciding to File for Bankruptcy 

When planning to divorce and file bankruptcy, it’s important to decide which to do first. If you file for divorce and then file for bankruptcy while the divorce is pending, the bankruptcy filing stops the divorce proceedings. Spouses with joint secured debts, such as a home mortgage or car loans, can file a joint bankruptcy petition before filing for divorce. The petition can cover joint and individual unsecured debts, including for medical care, credit card purchases, and signature loans.

However, if you file an individual bankruptcy petition and receive a discharge, and then file for divorce, your spouse may be liable for the joint debts you discharged in the bankruptcy. You will have to resolve those issues during the divorce proceedings.  

The court costs for filing a joint bankruptcy petition are the same as filing individually, which saves money. If you file bankruptcy before a divorce, a bankruptcy attorney can represent both of you, reducing legal fees. Getting rid of debt before filing for divorce makes it easier to negotiate a settlement agreement, which simplifies the divorce process and lowers your costs. 

Choosing Chapter 7 or 13 Bankruptcy

A Chapter 7 bankruptcy wipes out your unsecured debts without making any payments to creditors, and the entire process can be completed in four to six months. Generally, Chapter 7 bankruptcy won’t save a home, but if you don’t have much home equity and want a fresh start, you can avoid foreclosure, return the property, and discharge the debt.  

Some debts cannot be discharged in bankruptcy, such as alimony, child support, and income taxes less than three years old. Generally, student loans are not dischargeable unless the court grants a hardship exception. If most of your debts are nondischargeable or you have a property you want to save, and you have a reliable source of income, filing Chapter 13 bankruptcy may be your better choice. However, completing a Chapter 13 plan takes three to five years, which makes it difficult to divorce quickly if you file bankruptcy first.   

The interactions between bankruptcy and divorce laws are complex, and the effects depend on individual circumstances. If you are considering whether to file for bankruptcy and divorce, seek advice from the bankruptcy lawyers at Bender & Bender. Based in Wisconsin Rapids, WI, this law firm specializes in bankruptcy law to provide residents throughout the region with wise counsel and debt relief. Learn more about their legal services online and call (715) 423-4400 to get started.