How will bankruptcy affect my pending divorce?

barrett bankruptcy book
Bankruptcy and Divorce

Bankruptcy and divorce – both can be sticky situations – combined them and you may have a real mess on your hands. Usually a bankruptcy takes precedence over a divorce. If you file a bankruptcy during a divorce you may delay the distribution of assets and debts until the bankruptcy case is completed. In other words, you may have to finish the bankruptcy before the divorce can be finished. As a result it can be difficult to do bankruptcy and a divorce at the same time.   Also, bankruptcy can affect how debts are treated in your divorce. Bankruptcy courts treat your income differently depending on whether your marital status when the bankruptcy case is filed.

File for divorce first?
Filing for divorce first might make sense if your joint income is too high to qualify for Chapter 7 bankruptcy. For example, if you make significantly less than your spouse then you may be able to qualify for a Chapter 7 to get rid of most of the debts in your name without a Chapter 13 bankruptcy is a payment plan that may last 5 years. We have also had situations where both spouses may qualify for Chapter 7 bankruptcy individually after the divorce even if they could not do a Chapter 7 case jointly when still married.

File for bankruptcy first?
If you are on good terms with your spouse you may want to consider filing a bankruptcy before the divorce. If filing bankruptcy jointly the debts will be addressed under one bankruptcy case there by simplifying the process for you and your creditors. You can wipe out your joint debts together and may also be able to increase your exemption amounts. This is also helpful if one spouse makes all the money because it will increase the chance of qualifying for a Chapter 7 for that spouse. Bankruptcy will also eliminate contracts that neither one of you wants, like car loans that cost too much or mortgages on houses that are completely underwater.  This might also make the divorce action proceed in the future more amicably.

The proper planning prior to a bankruptcy and divorce can make each action go smoothly.  Working with an experienced Utah bankruptcy lawyer to plan your bankruptcy will make this sticky situation a bit less stressful and in the long run a smoother process.  In Utah call us to set up a free consultation 801-221-9911.

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