If you and your spouse are thinking about a divorce but you are in a difficult financial situation, you need to discuss whether you should put separating on hold to go through bankruptcy together or if bankruptcy is a step one or both of you might take following the dissolution of your marriage. In general, you do not want to try and go through both proceedings at the same time. The bankruptcy will only delay your divorce because it will affect the distribution of the marital estate.
The Basics of Bankruptcy
There are multiple types of bankruptcy, but their general purpose is to free people from debt they are unable to pay now or in the future. Chapter 7 enables people to pay off debt by selling property, like their home, and other debts are entirely discharged. Chapter 13 is a reorganization where your debts are altered into a payment plan you can afford.
Chapter 7 can take as few as three months to complete, but Chapter 13 is a years-long process because your debts do not just go away – you continue to work on paying them off.
Factors in Deciding When to File for Bankruptcy
There are many factors that come into play when determining whether to file for bankruptcy and when is the right time to do so.
Type of debt: You will need to look at the kind of debts you have accumulated before and during the marriage – they may not all be dischargeable. For example, federal student loans and owed taxes are not discharged in bankruptcy.
Your income: When you file for bankruptcy, the court looks at your income. Your income can vary depending on whether you are legally married, separated, or divorced at the time of filing.
Eligibility for Chapter 7: You and your spouse may not both be eligible for Chapter 7 bankruptcy because your combined income is too high.
Your relationship: If you are in a volatile or dangerous situation, it may not be possible to continue the relationship while improving your finances. Your health and safety always comes first.
When Filing for Bankruptcy Before Divorcing is Beneficial
If you and your spouse are eligible to file for Chapter 7 bankruptcy, it is often best to do this before you divorce. These proceedings are generally finished in 90 days, so within a few months, you and your spouse can be discharged from debt you cannot pay and out from under a mortgage you cannot afford.
Finalizing a Chapter 7 bankruptcy before you divorce can make the proceedings much faster as you will not have to decide on the distribution of debt.
It may be best to wait until after the divorce to file for bankruptcy if together you and your spouse are only eligible for Chapter 13 proceedings. You may be able to file for Chapter 7 bankruptcy alone later. Through Chapter 13, you and your spouse would both be responsible for continuing to pay the debts, which would keep you connected for years and significantly delay the dissolution of your marriage.
Contact a Naperville Divorce Attorney
If you are not sure how to move forward with a divorce when you are deeply in debt, call the experienced DuPage County divorce lawyers at our office. We can help you determine how to proceed with your divorce and bankruptcy, if it is necessary.