How does bankruptcy affect a divorce?

On Behalf of | Nov 10, 2020 | Divorce |

Divorce and bankruptcy sometimes occur at the same time. While this is undoubtedly stressful, sometimes one causes the other. Experian notes that courts will likely process a divorce before either member of the marriage can complete bankruptcy in order to ensure each party receives their assets before they apply.

If you are ready to file for divorce and want to declare or already declared bankruptcy, you may want to understand how this might affect the timeliness of the divorce and other processes related to it.

Discharge of joint debts

If money issues facilitated your divorce, you may want to complete your bankruptcy first so you can discharge or reorganize debts you and your spouse share, such as a car loan. If you and your spouse are both filing for bankruptcy, completing a joint bankruptcy before addressing the divorce may make financial matters simpler for you both. You may want to urge your spouse to cooperate with you on this front so you can file for divorce once a bankruptcy discharges your debts.

Retention of assets

If you choose Chapter 7 as a means of bankruptcy, which means the liquidation of your assets to pay back your debtors, you may want to postpone your divorce and remain married until the bankruptcy is complete, as joint processing may allow you to keep more assets as long as you are still married. If you choose Chapter 13, which reorganizes your debts and allows for a payment plan, staying married as you navigate the bankruptcy is usually not as useful.

Both divorce and bankruptcy can have a profound effect on your ability to obtain future credit, especially if your divorce is a complicated one. Learning which type of bankruptcy offers you more financial breaks may help you weather both events.



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