Bankruptcy and Divorce

Bankruptcy and divorce have special issues and special opportunities  

Which goes first, rhe chicken or the egg - bankruptcy or divorce?  The answer is that it depends and every case is different.

If the parties can cooperate, then it can make sense to file the bankruptcy first.  Why?

  • Because a joint bankruptcy will get rid of joint debts without fighting over them,
  • Because two can file as cheaply as one - one filing fee, and a reduced or the same attorney fee as for an individual.
  • Just one attorney fee - otherwise, if you fight, you each would need to hire separate attorneys to file the case.
  • Property division is simpler after the  bankruptcy (perhaps you get rid of the house in the bankruptcy) so there is less work for the divorce attorney.
  • You can double the exemption (what you get to keep in bankruptcy) on many items in a joint bankruptcy.
  • Your spouse can qualify as an additional household member under the means test, which is useful if one spouse makes a lot of money and the other not as much.  It can mean the difference between filing a Chapter 7 bankruptcy instead of a Chapter 13 (where you pay creditors).

But, sometimes, it makes more sense for the divorce to come first.  Why?

  • If combined household income flunks the means test, then one spouse might be able to still file but the other might not qualify.  After divorce, the increased domestic support obligations may help that spouse to pass the means test and file a Chapter 7 instead of a Chapter 13 (where you pay creditors).
  • If one spouse gets the house in the divorce, if done correctly, the trustee might not be able to get at it as an asset of the bankruptcy estate of the other spouse.
  • Your financial picture will be clearer, making the bankruptcy easier to file.  
  • If the spouses don't get along (which may be why they are divorcing), after the divorce, each spouse can file separately on their own debts, .
  • Having established domestic support obligations makes it easier to fill out the bankruptcy schedules, and those obligations get special treatment in bankuptcy.

My firm also handles matrimonial and divorce cases.
Effective October 17, 2005
Marvin Wolf, Esq. is a federally- designated Debt Relief Agent pursuant to Title 11 of the U.S. Code (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005). As an attorney, he helps debtors file for bankruptcy relief.

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