If you are in the unhappy position of dealing with both financial woes and relationship troubles, you may be led to contemplate both a bankruptcy and divorce in the near future. If both of these major legal moves are in your plans, you might want to consider the order of these filings and how it could affect your finances. Read on to learn more.
Debts Before Divorce
When couples divorce, the debts must be divided or assigned, leading to some potentially contentious battles over who owes what and who is responsible. If you are saddled with a great deal of joint debt, a chapter 7 bankruptcy filing could help eliminate that issue almost entirely. Filing for chapter 7 before filing for divorce is particularly helpful for couples who posses a lot of credit card debts, which are likely to simply go away with the filing.
Use Caution with Secured Debts
If you carry a lot of secured debts, which are loans that are secured by a property, you may want to be more cautious about filing a bankruptcy prior to a divorce. Mortgages and car loans are common types of secured debts, and you may be placing that property in jeopardy with a bankruptcy filing. Be sure to proceed carefully and discuss the ramifications of how any potential property forfeitures as a result of a bankruptcy filing could affect a divorce property settlement agreement.
Double Your Benefit
Exemptions allow some of the value of your belongings to be reduced, which might mean keeping that home or car that would otherwise be seized to help pay some of your creditors. You can, in some instances, double the amount of these valuable exemptions if you file for a chapter 7 bankruptcy while you are still married. You will, of course, need to file a joint bankruptcy to take advantage of the double exemptions.
Watch Your Income
To file for bankruptcy, your income must fall at or below the median income in your state. This rule is meant to prevent wealthy people from misusing bankruptcy to get out of paying their debts. If you are married, you must use your joint income to pass the so-called "means test", which means that if your spouse is a high earner it could negatively affect your ability to file for a chapter 7 bankruptcy. Going through a divorce and then filing bankruptcy later might be necessary in this case.
With these potential complications, legal help is required. Speak to a bankruptcy law attorney as soon as possible to determine how a divorce could affect your filing status.