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Everything to Know About Bankruptcy & Divorce

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Divorce is an arduous process that can play havoc with your emotional and mental health in more ways than one. You can well imagine the additional stress that a simultaneous bankruptcy filing can bring with it. More often than not, divorce can also become the main cause for filing bankruptcy due to its disruptive effect on the finances.

Divorce can provide you with a chance to start your personal life afresh, just as filing bankruptcy can mean a fresh financial start. However, one piled on top of another can be quite tough and nerve-wracking, to say the least. If you and your spouse are looking to file for both at the same time, you need a clear understanding of how divorce and bankruptcy can affect each other.

Can You File for Divorce and Bankruptcy Simultaneously?

Simply put, one should not try to handle these two legal issues together if at all possible. And there are logical reasons for it. Common legal sense dictates that you should file bankruptcy before filing for a divorce. Here’s why.

A bankruptcy, whether chapter 7 or chapter 13, prompts an automatic stay that freezes your property and other assets, and also bars your creditors from communicating with you. This stay remains in place for the entire duration of the bankruptcy process to help the bankruptcy court sort out and reallocate your assets and debts.

As we know, the division of assets constitutes a significant part of divorce proceedings. If you happen to file for divorce soon after your bankruptcy filing, while the bankruptcy process is still ongoing, the automatic stay would deny the family court the ability to access and split the marital assets. This could result in unduly lengthy and protracted divorce proceedings.

Divorce or Bankruptcy: Which Should You File First?

As mentioned above, you should not file for divorce and bankruptcy simultaneously to avoid legal and financial complications. While the choice regarding which process to handle first lies with you, there are a few factors you must consider before making this decision.

If the terms between you and your soon-to-be ex-spouse are amicable, filing for bankruptcy may be the better option for both of you. This will not only allow you both to split filing costs and attorney fees, but also provide possible protection from repaying joint debt. This could be beneficial if you own joint property with your spouse.

While exemption laws vary across different jurisdictions, some districts also provide double exemptions in case of a joint bankruptcy filing. It is always useful to seek legal counsel from a bankruptcy attorney in your district to gain knowledge of the available exemptions in your area.

Another point to note is that the bankruptcy process typically divides the joint assets. So, if you file for bankruptcy first, it will simplify the asset division process during your divorce proceedings.

Type of Bankruptcy You Should File

Chapter 7 Bankruptcy

The most preferred form of bankruptcy is Chapter 7, which lets individuals and couples reduce particular debts by dissolving valuable assets. Chapter 7 bankruptcy involves the liquidation of sizeable assets, such as your house or automobiles.

A Chapter 7 bankruptcy filing during a divorce could have an effect on the division of property. Since you cannot divide assets that might be sold soon, it may put a spanner in your divorce proceedings. At the same time, you can manage debts with the help of Chapter 7, which in turn can make your divorce affordable.

The usual timeline of a Chapter 7 bankruptcy process helps with the elimination of debt within a period of 3 to 6 months. This allows you and your spouse to file for divorce without too much of a delay after filing for bankruptcy first.

Chapter 13 Bankruptcy

Through Chapter 13 bankruptcy, couples can exercise the option to repay their debt over a period of three to five years, based on their repayment capabilities. After divorce, they can continue to repay separately, making the whole process more manageable.

Further, in a chapter 13 bankruptcy, you can choose to restructure, or even cancel, the bankruptcy plan if you file for divorce in the middle of the repayment period. You and your partner can then continue to handle the bankruptcy separately, as the plan gets divided.

How Should You Handle the Divorce?

If you are on amicable terms with your spouse and still want to go ahead with the simultaneous filing for divorce and bankruptcy, you may opt for a collaborative divorce to make the process smoother and manageable. However, if you two do not see eye to eye; litigation, although expensive, long drawn, and stressful; would be the alternative you should go for.

Contact a Seasoned Family Law Attorney in Kentucky

Every divorce case is different, making it essential for you to speak with an experienced family law attorney about the specific circumstances in your case before making any critical decisions. If you are facing the dilemma of filing for divorce and bankruptcy, do not hesitate to contact our knowledgeable divorce attorneys at John H. Ruby & Associates in Kentucky to discuss your situation.

Call us today at (502) 373-8044 or send us an online message for a free, no-obligation consultation.