What Comes First: Bankruptcy or Divorce?
April 8, 2013 By Law Offices of Marshall D. Schultz
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It’s a reality that bankruptcy and divorce often coincide, but the question is, which should come first, bankruptcy or divorce? The answer to that question will depend on your individual set of circumstances and if you want to take the risk and wait.
There is no doubt that money problems can lead to a vast amount of stress, worry and anxiety, especially when you’re married or have a family. Unfortunately, even the best marriages succumb to financial problems, and this is the very reason why so many couples file for bankruptcy shortly before or shortly after they get a divorce.
It’s important for spouses to understand that creditors are not a part of their decision to get a divorce, even if the debt accumulated during the marriage is one of the reasons why one spouse decided to end the marriage. Even though one spouse may agree to pay off a certain debt or a certain credit card, just because the agreement is in the divorce decree, it doesn’t mean the other spouse is automatically absolved from paying that debt. Creditors don’t care about who agreed to pay which debts in a divorce, all they are concerned about is getting paid. Divorcing couples can divide up the creditors however they see fit, but because both spouses signed on those credit cards, they are both obligated to pay them one way or another.
If you get a divorce and your spouse decides to stop paying a credit card that you opened together, then the credit card company can come after you to collect on that debt. On the other hand, if you get a divorce and afterward your ex-spouse files Chapter 7 bankruptcy and you don’t, then providing the marital debt was included in his or her bankruptcy, the creditor can still come after you for payment.
In contrast, let’s say you have a pending divorce and bankruptcy, this poses additional issues. When your spouse learns that once a divorce judgment is entered and their responsibility to pay that debt has been finalized in the judgment, then the arrangements in that judgment cannot be eliminated if they file for bankruptcy. This means that your spouse can agree to pay off a specific credit card or medical debt and later file bankruptcy, but you can still chase them down for reimbursement but this might be after you were forced to pay the debt and this is not favorable. While the creditor can still come after you, because of the divorce judgment, you can make your spouse pay for their agreed upon portion of the debt.
In general, one party will agree to pay the marital debts, and because this agreement has become a judgment, that debt cannot be eliminated in a bankruptcy. So, if your spouse agrees to pay these debts and then files for bankruptcy, they would not be able to eliminate that debt in the bankruptcy. However, if your spouse decides to file bankruptcy before filing for divorce, this may eliminate his or her obligation to pay. In the case of an impending divorce, your spouse would have to determine if they would be willing to accept liability on the debt that he or she would likely eliminate if they filed bankruptcy ahead of time. When spouses are heading towards divorce, it’s important that they address these issues and with a clear mind. If your spouse files for bankruptcy on their own before the divorce, you could be stuck paying those bills or you could be driven into bankruptcy yourself.
While a number of debtors cite divorce as the reason they filed for bankruptcy, by planning ahead, it can make your divorce and your bankruptcy a lot less complicated and more cost effective. Whether you and your spouse should file for bankruptcy before or after your divorce will depend on what state you live in, how much debt and property you have, and which type of bankruptcy you want to file. For example, the fees for filing bankruptcy jointly and individually are the same, so filing joint bankruptcy with your spouse before you file for divorce can save you both court fees. What’s more, if you and your spouse decide to hire a bankruptcy attorney, your filing fees will more likely be much lower if you have to pay one attorney versus filing separately. However, it’s important to be open and honest with your bankruptcy attorney and inform him or her of your impending divorce so they can be sure there isn’t any conflict of interest for him or her representing you both. Filing a bankruptcy before a divorce can certainly simplify debt and property division, thereby lowering your overall costs as a result, this is especially beneficial if you are on a limited income or if only one of you are working at the moment.
Keep in mind that if your spouse is ordered to pay joint-debt that you had together, and your spouse doesn’t pay it or if they file for bankruptcy, you’re still on the hook for that debt and the creditor can come after you to collect on that money. You do have the right to be reimbursed by your ex if he or she violates the divorce decree, and this is true even when they discharge the obligation to pay the creditor, but your spouse doesn’t discharge their obligations to you under the divorce decree.
Collecting from your ex may be easier said than done, and it usually means pursuing him or her in court. Because of this, it may be in both spouses’ best interests to file bankruptcy and wipe out their joint debts before they file for divorce. By filing for bankruptcy before divorce, you can gain a true financial fresh start without having the marital debts looming over your head. If you are contemplating filing for divorce and bankruptcy, you should consult with a knowledgeable bankruptcy attorney in your area.
ABOUT THE AUTHOR: Law Offices of Marshall D. Schultz
The Law Offices of Marshall D. Schultz is a bankruptcy law firm located in Detroit, Michigan. The bankruptcy attorneys at the firm have more than 33 years of experience and they have handled over 10,000 consumer bankruptcy cases. Their firm has a positive rating from Avvo and their lawyers are members of the State Bar of Michigan and the U.S. District Court. The legal team has extensive experience in all aspects of Chapter 7 and Chapter 13 bankruptcy, as well as bankruptcy alternatives, wage garnishments, combating creditor harassment and foreclosure defense.
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More information about Law Offices of Marshall D. Schultz
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
It’s important for spouses to understand that creditors are not a part of their decision to get a divorce, even if the debt accumulated during the marriage is one of the reasons why one spouse decided to end the marriage. Even though one spouse may agree to pay off a certain debt or a certain credit card, just because the agreement is in the divorce decree, it doesn’t mean the other spouse is automatically absolved from paying that debt. Creditors don’t care about who agreed to pay which debts in a divorce, all they are concerned about is getting paid. Divorcing couples can divide up the creditors however they see fit, but because both spouses signed on those credit cards, they are both obligated to pay them one way or another.
If you get a divorce and your spouse decides to stop paying a credit card that you opened together, then the credit card company can come after you to collect on that debt. On the other hand, if you get a divorce and afterward your ex-spouse files Chapter 7 bankruptcy and you don’t, then providing the marital debt was included in his or her bankruptcy, the creditor can still come after you for payment.
In contrast, let’s say you have a pending divorce and bankruptcy, this poses additional issues. When your spouse learns that once a divorce judgment is entered and their responsibility to pay that debt has been finalized in the judgment, then the arrangements in that judgment cannot be eliminated if they file for bankruptcy. This means that your spouse can agree to pay off a specific credit card or medical debt and later file bankruptcy, but you can still chase them down for reimbursement but this might be after you were forced to pay the debt and this is not favorable. While the creditor can still come after you, because of the divorce judgment, you can make your spouse pay for their agreed upon portion of the debt.
In general, one party will agree to pay the marital debts, and because this agreement has become a judgment, that debt cannot be eliminated in a bankruptcy. So, if your spouse agrees to pay these debts and then files for bankruptcy, they would not be able to eliminate that debt in the bankruptcy. However, if your spouse decides to file bankruptcy before filing for divorce, this may eliminate his or her obligation to pay. In the case of an impending divorce, your spouse would have to determine if they would be willing to accept liability on the debt that he or she would likely eliminate if they filed bankruptcy ahead of time. When spouses are heading towards divorce, it’s important that they address these issues and with a clear mind. If your spouse files for bankruptcy on their own before the divorce, you could be stuck paying those bills or you could be driven into bankruptcy yourself.
While a number of debtors cite divorce as the reason they filed for bankruptcy, by planning ahead, it can make your divorce and your bankruptcy a lot less complicated and more cost effective. Whether you and your spouse should file for bankruptcy before or after your divorce will depend on what state you live in, how much debt and property you have, and which type of bankruptcy you want to file. For example, the fees for filing bankruptcy jointly and individually are the same, so filing joint bankruptcy with your spouse before you file for divorce can save you both court fees. What’s more, if you and your spouse decide to hire a bankruptcy attorney, your filing fees will more likely be much lower if you have to pay one attorney versus filing separately. However, it’s important to be open and honest with your bankruptcy attorney and inform him or her of your impending divorce so they can be sure there isn’t any conflict of interest for him or her representing you both. Filing a bankruptcy before a divorce can certainly simplify debt and property division, thereby lowering your overall costs as a result, this is especially beneficial if you are on a limited income or if only one of you are working at the moment.
Keep in mind that if your spouse is ordered to pay joint-debt that you had together, and your spouse doesn’t pay it or if they file for bankruptcy, you’re still on the hook for that debt and the creditor can come after you to collect on that money. You do have the right to be reimbursed by your ex if he or she violates the divorce decree, and this is true even when they discharge the obligation to pay the creditor, but your spouse doesn’t discharge their obligations to you under the divorce decree.
Collecting from your ex may be easier said than done, and it usually means pursuing him or her in court. Because of this, it may be in both spouses’ best interests to file bankruptcy and wipe out their joint debts before they file for divorce. By filing for bankruptcy before divorce, you can gain a true financial fresh start without having the marital debts looming over your head. If you are contemplating filing for divorce and bankruptcy, you should consult with a knowledgeable bankruptcy attorney in your area.
ABOUT THE AUTHOR: Law Offices of Marshall D. Schultz
The Law Offices of Marshall D. Schultz is a bankruptcy law firm located in Detroit, Michigan. The bankruptcy attorneys at the firm have more than 33 years of experience and they have handled over 10,000 consumer bankruptcy cases. Their firm has a positive rating from Avvo and their lawyers are members of the State Bar of Michigan and the U.S. District Court. The legal team has extensive experience in all aspects of Chapter 7 and Chapter 13 bankruptcy, as well as bankruptcy alternatives, wage garnishments, combating creditor harassment and foreclosure defense.
Copyright Law Offices of Marshall D. Schultz - Google+
More information about Law Offices of Marshall D. Schultz
View all articles published by Law Offices of Marshall D. Schultz
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
