Which Comes First – Divorce or Bankruptcy?
Experienced Columbus Ohio Divorce and Bankruptcy Lawyer
It is not uncommon for people in Columbus Ohio and all over the county who are going through marital hardships to also be suffering through financial hardships as well. I see many people who are filing for divorce who want to, or need to file a bankruptcy. Income that was supporting one household may now be needed to support two households. If you are facing a bankruptcy and are also considering a divorce, which case you file first could affect the overall outcome.
Filing for bankruptcy before filing for divorce has some advantages:
Filing for bankruptcy prior to filing for divorce will simplify the divorce process. A bankruptcy will discharge most debts, such as credit cards, medical bills, signature loans, and other unsecured debt. Eliminating or reducing the amount of marital debt should result in a quicker settlement or at least reduce the number of issues in your case.
Filing for bankruptcy prior to filing a divorce could also be cost effective. Individuals who are married to each other can file a joint bankruptcy. This is true whether you are living together or living apart. If you file separately, you each have to pay court costs and you have to pay for your own lawyer. Why pay two lawyers if you don’t have to?
If there is a pension, retirement account, or some other valuable asset that will be transferred to you in a divorce, it may be a good idea to file bankruptcy before that asset is transferred to you. Under some circumstances, your bankruptcy trustee can force you to liquidate or cash in that asset.
Can my spouse make me file bankruptcy?
What if your spouse files bankruptcy? You do not have to file just because your spouse does. If your spouse files, the bankruptcy will not affect your credit. You will not have to go to court. You will not be part of that case. If you have no assets or debts in common, it is probably a good thing.
However, if your spouse files bankruptcy, and there are joint assets or debts, you may have no choice but to file. A Chapter 7 bankruptcy filing only protects the one who filed. Creditors can still pursue you for any joint car loans, credit cards, or mortgages your spouse may have listed that are also in your name.
Filing for Bankruptcy during a divorce:
What if you have already filed for divorce but have not completed the process, can you still file for bankruptcy? The answer is yes. You can file for bankruptcy at any time during the divorce process.
However, the bankruptcy filing will postpone the divorce until the bankruptcy is over. This is because the Bankruptcy court issues an automatic stay as soon as the bankruptcy case is filed. The automatic stay is a term to describe the protection the court gives a bankruptcy filer from creditors and other courts, including the divorce court.
If you wish to conclude a divorce while you (or your spouse) are in bankruptcy, you must ask the bankruptcy court for permission to get a divorce by filing a motion with the bankruptcy court requesting relief from the automatic stay.
Filing for Divorce before filing for bankruptcy:
While it may seem logical to file for bankruptcy before a divorce, there are some strategic advantages to filing for divorce first.
The amount of marital debt you assume in the divorce may affect the duration or amount of spousal support. The divorce court must take into account the amount of marital debt each party assumes when deciding how much spousal support to award.
Making the payment of marital debts part of a divorce decree or separation agreement makes them non-dischargeable in a future bankruptcy. For example, if one spouse is ordered to pay a Visa account in a divorce or dissolution, that spouse can be held in contempt of court for not paying Visa, so long as the domestic order was made before that spouse filed bankruptcy.
Finalizing a divorce before a bankruptcy is filed can help since the divorce decree will clearly state who gets what assets and who pays what debts. Each party will know what assets and debts to include on the bankruptcy petition. If you know in advance one or both of you will be filing a bankruptcy, you should include language in the divorce papers that state that. You also may be able to prepare divorce or dissolution paperwork that is crafted in a way that only one spouse needs to file, thus protecting the credit of the non-filing spouse.
A bankruptcy and a divorce are each complicated legal issues on their own. When you mix them together, they become even more complex. Every case is different, so it is a good idea to be careful and to consult an experienced lawyer who can tell you what is best for you.
Contact Robert Caplan, an Experienced Columbus Bankruptcy and Divorce Attorney
I will work with you to discuss your unique situation and discuss the alternatives available to you as you consider this important decision in your life. I work with my clients to help keep costs down while providing the legal experience to ensure the best possible outcome in their case. Contact me today, or call (614) 252-2026 to schedule a free consultation, and let’s begin to work together to establish a path to your future.