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Should You File Bankruptcy Before Or After Your Divorce Is Finalized?
Should You File Bankruptcy Before Or After Your Divorce Is Finalized?

It is not uncommon for people going through a divorce to suffer economic hardship.  When people separate while a divorce is pending, or following a divorce, debts that were being paid with two incomes in most instances now become the responsibility of one person.  And, as the saying goes, two people can live as cheaply, or near as cheaply, as one.  When two people decide to go their separate ways, money becomes more scarce.  Add to that, the situation involving a divorcing couple who have children to care for, and the problems compound.

Our law firm, Smith & Weer, is one of the few that handle both divorce and bankruptcy cases in the Peoria and Pekin area.  We have offices located in Peoria, Pekin, and Galesburg, Illinois.  Many of our divorce and Bankruptcy clients in Peoria, Pekin, and Galesburg who are thinking about Bankruptcy while facing a divorce ask us the same question:  “Should I file the Bankruptcy before or after my divorce is finalized?”  The answer is, “it depends.”

The best option for people in this situation is for both spouses to file a joint Bankruptcy provided that both need to, and provided that both can cooperate to do so together.  The advantage of filing jointly – at least if they agree to use Smith & Weer – is that two people can file for the price of one.  Not all Bankruptcy firms agree not to charge extra for the other spouse, but Smith & Weer does.  This can result in significant savings.

If only one spouse feels the need to file Bankruptcy before or while the divorce is pending, then one of two things can happen depending on how he or she holds the debt.  If the debt is solely in the potential filing spouse’s name, then filing on solely-held debt will not have an impact on the non-filing spouse.  If the debt is jointly held as marital debt with the non-filing spouse, then the creditor can still proceed against the non-filing spouse, putting the entire burden on him or her to pay the debt.

If a party files Bankruptcy before or during a divorce, the divorce judge is still able to assign marital debt to the filing spouse regardless of whether he or she filed Bankruptcy.  This results in the Bankruptcy filing being for naught as to the marital debt.  The non-filer can take the obligated former partner back to court to enforce the debt assignment through the use of contempt proceedings.  Furthermore, because the filing spouse in our hypothetical eliminated the debt that was solely in his or her name, the divorce judge may deem it more equitable to place a greater degree of marital debt on his or her shoulders.  This all leads to the conclusion, that if possible, it is better to wait until after the divorce is finalized before filing a Bankruptcy.

After the divorce is over, and the dust has settled so to speak, a party will then be able to assess what he or she is  facing in meeting everyday living expenses, as well as whether they are going to be able to pay the debts that they were assigned in the divorce.  If a divorced party decides its best and necessary for them to file, and he or she wants to eliminate the debts assigned to them by the divorce court, then he or she can do so by filing a Chapter 13 Bankruptcy.  A Chapter 13 Bankruptcy allows that person to eliminate all marital debts assigned to him or her in the divorce decree, including the other party’s attorney fees.  The only exceptions are child support and spousal maintenance.  Child support and maintenance are nondischargeable no matter when the Bankruptcy was filed, or whether you file a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.

Have questions?  Contact us for a free no obligation consultation.  We’d be happy to meet you in Peoria, Pekin or Galesburg.  At times like these, the better informed you are, the brighter your future will become.

 

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