Filing for Bankruptcy With Divorce/Legal Separation
Separation and divorce are likely to have a significant effect on your finances. You’ll be going from two incomes to one, or from one income source to none, and you’ll need to deal with joint and separate debts, rent, mortgages, and other matters. If you are considering divorce while going through bankruptcy or considering bankruptcy while legally separated, there are many considerations to keep in mind. We explore the interaction between divorce and bankruptcy below. If you are dealing with debt while going through a divorce or separation, or if you are facing other debt issues, call a knowledgeable Poughkeepsie debt relief and bankruptcy lawyer for advice and assistance.
Divorce During Bankruptcy
If you are already in the midst of a Chapter 13 or Chapter 7 bankruptcy and you then become legally separated or file for divorce, it may behoove you to separate the bankruptcy into two cases. You have the option of doing so, which allows each spouse to proceed with their own bankruptcy as they see fit. It may make sense to convert from Chapter 13 to Chapter 7 or to try to wrap up the case quickly, depending on your circumstances. Talk to your bankruptcy attorney to discuss your best option.
You Can File for Bankruptcy Separately Before Divorce
If you are already separated, or even if you are not yet separated, you can choose to file for bankruptcy individually rather than jointly. You are not required to file jointly, regardless of your marital status. There may be good reasons to file jointly, however. A joint petition allows the parties to exempt more property and discharge more debts, for example.
Calculating Your Income for the Means Test During Separation or Divorce
If you are filing for Chapter 7 bankruptcy, you need to report your income and expenses to see if you satisfy the means test. If you are married and you file taxes jointly with your spouse, then your entire household income will be taken into account–even if you file for individual bankruptcy. If, however, you are separated, live separately, maintain separate households, and plan to file for taxes separately, then you can file for Chapter 7 based only on your own income. You’ll have a better chance at qualifying for Chapter 7 if you do not need to report your spouse’s income.
Jointly-Incurred Debt Belongs to Both Spouses
When considering whether to file for bankruptcy during separation or divorce, it’s important to keep in mind that joint debts (such as joint credit cards) belong to both parties. Until you legally separate, new debts that you incur will be jointly owned. After a legal separation, new debts will belong to each party individually.
Regarding joint debts, if only one spouse files for bankruptcy, creditors can seek to enforce the debt against the non-filing spouse. So, if your spouse files for bankruptcy and you do not, then your creditors could still come after you for the debt, even though they can no longer pursue your spouse. Moreover, depending upon the application of the homestead exemption, the creditors might even go after your home.
Bankruptcy and Alimony
Your bankruptcy proceeding can have an impact on your divorce. If you are able to obtain a bankruptcy discharge of your debts while your divorce is pending, the family court will likely take your bankruptcy into account when evaluating alimony and child support. You likely have more “disposable income” now, which means paying more alimony to your spouse or receiving less, depending upon whether you are the payor or the recipient.
Should I File for Bankruptcy Before or After Divorce?
As we’ve explained above, going through a simultaneous bankruptcy and divorce triggers a lot of financial consequences in both proceedings. Whether you are better off filing for bankruptcy while separated or waiting until the divorce is finalized depends on your individual circumstances and your family’s financial situation. There’s no one-size-fits-all answer, and your bankruptcy attorney can help you decide what works best for you.
If you are struggling with debt in New York, contact the detail-oriented and effective Hudson Valley bankruptcy lawyers at Ingber & Provost for a free consultation on your case at 845-733-2720.