When a couple decides to file for bankruptcy, there are several things
to consider about when is the best time to file. Filing for bankruptcy
before a divorce can often make the process much easier than filing after
a divorce. In a divorce, assets must be divided and shared debts must
be managed. There are many differences in bankruptcy laws per state and
filing together or separate could be affected by these differences.
Bankruptcy Before Divorce
The transition into a divorce is much easier on a couple if they have reconciled
their bankruptcy while they were still legally married. As a couple, filing
together or separate can also impact the outcome of your bankruptcy case.
There are many advantages in filing separately in marriage. You can file
your own bankruptcy from your spouse, or one spouse may be the only one
to file. One advantage of filing separate from a spouse is to protect
the credit standing of the non-filing spouse. This is particularly helpful
if one spouse accumulated the majority of the debt. However, if you receive
a discharge on a debt, the non-filing spouse may still be held liable
for any shared debts.
Filing together may be the better option if there are more shared debts
than individual debts in a marriage. Shared debts, or debts accumulated
on joint accounts, that are discharged in bankruptcy will release both
individuals from liability of those debts. Also, shared assets may be
better protected under exemption laws when filing together. One disadvantage
to filing together is whether the combined incomes are high enough to
disqualify them from eligibility for bankruptcy protection.
Bankruptcy After Divorce
The biggest issue in filing after a divorce is regarding how debts are
managed and the possession of assets. Debts accumulated on joint accounts
during marriage are handled similarly in bankruptcy as in filing separately
in marriage. The non-filing spouse may still be held liable for the debt
if the filing spouse receives a discharge. It will be more difficult to
satisfy the creditor if they know there is still one spouse that did not
receive a discharge and can be held solely responsible for repaying the debt.
Most assets are divided in the divorce process and each spouse may take
possession of certain assets. If you file for bankruptcy and the court
allows for a particular asset to be liquidated in order to satisfy your
debt, that asset can be taken from the non-filing spouse. There is no
protection for assets that are in a non-filing member’s possession
and any of the assets that were shared in marriage may be at risk for
seizure during bankruptcy.