Is It Better to File Bankruptcy Before, After, or During Divorce?

There’s no such thing as a typical divorce. For any couple, divorce can be a difficult and stressful experience. However, the stakes are much higher whenever you add bankruptcy to the mix.

Bankruptcies, like divorce, vary greatly depending on the circumstances. If you and your spouse are facing financial hardships due to debt, filing for bankruptcy may be the best course of action.

Because divorce and bankruptcy are both complex financial matters, there are essential factors to consider before going to court. Depending on your situation, you may benefit more from filing sooner rather than later.

Filing for Bankruptcy During Divorce

When you file for divorce and bankruptcy simultaneously, several complications may arise that can cause procedural delays.

Whenever you file for bankruptcy in Michigan, your assets become frozen in bankruptcy court. As such, asset-related issues in your divorce, such as property settlements, cannot be resolved. Although Michigan has equitable distribution rules for a divorce, the bankruptcy process can quickly tie up divorce court proceedings, which may result in unnecessary delays.

Because of their clashing interests, it’s never recommended for anyone to file a bankruptcy and divorce case simultaneously.

Filing for Bankruptcy Before Divorce

For many couples, the easiest solution to resolve their financial hardships and avoid complications is to file a bankruptcy case before getting a divorce. Generally, this involves Chapter 7 bankruptcy.

When you and your spouse file for bankruptcy together, you’ll enjoy the convenience of sharing the legal fees and benefit from joint debt relief. As opposed to individual bankruptcy, filing jointly allows for more exemptions. This means you can hold on to more property and assets while still absolving your debt.

Through liquidation, Chapter 7 allows you and your spouse to eliminate secured and unsecured debts racked up during your marriage. Some commonly shared debts for married couples include:

• Credit cards
• Medical bills
• Overdrafts
• Car loans
• Utility bills
• Mortgage

The divorce process becomes far more streamlined when you walk away from your marriage free of debt. As such, you and your spouse can focus on divvying up your assets and resolving the most critical disputes in your divorce.

Filing for Bankruptcy After Divorce

For some individuals, bankruptcy is only a temporary solution to help reorganize their debt and finances. As such, you may file for Chapter 13 and opt for a payment plan rather than liquidate your assets.

If you or your spouse are considering Chapter 13, then waiting until your divorce is finalized may be the best option. In Michigan, debt is shared and divided between spouses. As such, any payment plans that stem from a Chapter 13 bankruptcy case may follow you and your spouse for years to come.

If you want to avoid the burden of ongoing debt repayment alongside your ex-spouse, you should file for Chapter 13 only whenever your divorce has been finalized.

Divorce and Bankruptcy in Oakland County

Gucciardo Family Law represents divorce cases throughout the Detroit area. If you’re involved in a bankruptcy-related divorce, consult with us today.