Bankruptcy & Divorce: How Are They Related?


A large number of people cite divorce as the main reason behind their bankruptcy filing, and for good reason. Without proper planning, divorce can be a complex and extremely costly process, putting individuals and couples in a deep financial hole that can sometimes be insurmountable. By planning ahead, however, couples can make both their bankruptcy and their divorce simpler and more cost effective.

Should I File for Divorce or Bankruptcy First?

The decision to file for bankruptcy or divorce first will depend mainly on your financial situation and area of residence. As a general rule, bankruptcy will most often take precedence over divorce. Since the distribution of your assets and debts during divorce cannot take place until your bankruptcy is completed, there is no real way for you to do them both at the same time. If you and your spouse’s income is too high to qualify for Chapter 7 bankruptcy, you may want to divorce first in order to avoid a Chapter 13 repayment plan. It is entirely possible that you may both qualify for Chapter 7 separately but not jointly.

On the flipside, filing for bankruptcy jointly before divorce may be desirable as a means to address all debts under a single case, wiping a majority of your debts clean and increasing your exemption amounts. This is especially helpful if only one of you makes all of the money as it will increase that spouse’s chances of qualifying for Chapter 7 bankruptcy. This could also eliminate debts that neither you nor your spouse can afford to pay for, such as expensive car loans or mortgages for homes that are facing foreclosure. This will in turn minimize the fight over unsecured debt during your divorce. It is important to note, however, that if you jointly file for Chapter 13 bankruptcy, both you and your spouse will be responsible for the associated repayment plan.

Should I File for Chapter 7 or Chapter 13?

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a type of bankruptcy that requires you to sell your liquid assets in order to satisfy creditors, with any remaining unsecured debts being discharged. This method will usually allow you to receive a discharge within a few months of filing, making it easy to be completed prior to divorce.

Chapter 13 bankruptcy, on the other hand, does not require you to sell your assets. Instead, this process involves reorganizing your assets and establishing a three to five year repayment plan. Since bankruptcy takes precedent over divorce, you may not complete your divorce until the end of your repayment period. For this reason, if you are looking to file for Chapter 13 to avoid selling your property and assets, it may be a better idea to complete your divorce first and file for bankruptcy separately after your separation.

Bankruptcy Lawyer in Boca Raton

If you and your spouse are looking to file for bankruptcy, the Boca Raton bankruptcy attorney at the Law Offices of David Kovari, PA can help you determine a strategy that guards your assets and best fits your individual needs. With nearly 20 years of dedicated legal experience, we can provide the strong legal guidance you need to get back on the road towards financial freedom.

Schedule a consultation or call (800) 843-1165 today to find out more about how we can assist you.