Divorce And Bankruptcy–Which One First?

Divorce is one of the main reasons why individuals might file for bankruptcy. Soon-to-be-divorcees who think they may have to file for bankruptcy at some point in their divorce proceedings might want to understand whether to do this before or after filing their petition for divorce, as the order of events can affect both the complexity and sometimes the expenses involved in both bankruptcy and divorce. To learn more about divorce and bankruptcy, including which one to file for first, and discover how a seasoned Georgia family law attorney from The Millard Law Firm may be able to advise those trying to plan for divorce, call our office today at (678) 319-9500.

Understanding Divorce and Bankruptcy

According to the United States Government, divorce proceedings culminate in the issuing of a decree by a court that formally ends a marriage. This divorce decree provides legal documentation that the divorce took place, as well as setting out the specific divorce terms. These terms typically include spousal maintenance or alimony, asset and debt division, and for divorcing couples with children will likely also involve arrangements regarding custody, child support, and visitation. Some states also provide divorce certificates, containing both party’s names, the divorce date, and the divorce location, which the former couple may use to file requests for updated personal identification to legally change their names, and present to their local court as part of their procedure for requesting a new marriage license, if they wish to remarry.

The United States Courts describe bankruptcy as a process that helps individuals discard their debts or create a plan for repaying them. This process starts by filing a bankruptcy petition with the court. The petition may be filed by a single individual, a married couple, or a legal entity. The federal courts handle bankruptcy cases, according to the rules outlined in the United States Bankruptcy Code, and there are several bankruptcy types, including:

Chapter 7: This applies to individuals and businesses that want to liquidate.
Chapter 9: This is a suitable bankruptcy type for municipalities, like towns, cities, villages, school and taxing districts, and municipal utilities, looking to reorganize.
Chapter 11: Businesses wishing to reorganize may decide to file for this bankruptcy type.
Chapter 12: This type primarily applies to fishermen and farmers.
Chapter 13: In addition to Chapter 7, individuals might file for this bankruptcy type, depending on their circumstances.
Chapter 15: Filings involving several parties from multiple countries fall under this type.

Is It Better To File for Bankruptcy Before or After a Divorce?

The determination of whether it is better to file for bankruptcy first, and then for divorce, or on the other hand to file for divorce and then proceed with a bankruptcy petition, depends in part on an individual’s circumstances. Below are the main reasons why individuals may consider filing for bankruptcy prior to initiating divorce proceedings, followed by some considerations that might make it advisable to instead file for bankruptcy only after divorce proceedings are under way.

Filing for Bankruptcy Before Divorce

Filing for bankruptcy jointly before getting a divorce is typically less expensive than each spouse doing it separately afterward due to increased attorney fees. In addition, property division during divorce proceedings becomes easier when the couple files for bankruptcy beforehand. Furthermore, debt division is more straightforward, as the couple can discharge many of their debts that the court usually splits as part of the divorce proceedings.

Moreover, filing for joint bankruptcy enhances the exemption limit in comparison to individual filings. This enables each party to potentially keep key assets, such as a house or car. Find out more about divorce and bankruptcy and explore the legal options available for individuals contemplating a divorce by scheduling an individual consultation with a Georgia family law attorney from The Millard Law Firm.

After Divorce

Pursuing a joint bankruptcy before a divorce requires collaboration. If this is not possible, filing for bankruptcy after a divorce might be more appropriate.

The type of bankruptcy can also influence a couple’s decision to pursue bankruptcy after the divorce’s completion. For example, if the couple wants to file for Chapter 7 bankruptcy, which is typically quicker to conclude than Chapter 13, this requires the passing of a means test, which is usually easier to pass after the divorce as it considers the couple’s assets separately rather than jointly.

How Does Filing for Bankruptcy Affect Divorce?

Filing for bankruptcy does not impact child support or custody issues during a divorce, but it does affect property division. When an individual files for bankruptcy, that person’s bankruptcy estate gains ownership of the person’s assets, and an automatic stay takes effect, preventing any action that attempts to use or control these assets, including property division during divorce proceedings. The exact way that bankruptcy impacts contemporaneous divorce proceedings will depend on whether the bankrupt individual filed for Chapter 7 or 13 bankruptcy.

Why Do People File for Bankruptcy After Divorce?

People might file for bankruptcy after divorce for a number of reasons. Some of these include:

Increased debt: When a marriage ends, this often leads to greater financial uncertainty and more debt. During the divorce proceedings, the court splits the couple’s outstanding debt and, if one party cannot repay their share, they might file for bankruptcy.
Lifestyle change: Following a divorce, each party becomes responsible for paying for their own expenses. If one party had significantly higher income than the other during the marriage, this may lead to significant lifestyle changes for the lower-income partner after divorce, such as moving into a smaller home or getting a new job. On the other hand, for couples whose shared lifestyle depended on shared financial responsibility for household expenses, both partners may need to make substantial changes to their living arrangements after receiving their divorce decree, and one or both of the former spouses may be left without financial security.
Child and spousal support: For couples in which one party used to fund all or most of the couple’s expenses, in many cases this former spouse may be required to pay significant maintenance in child support and alimony payments, and in these cases the higher-income former spouse may struggle to make their own payments, especially if they are attempting to maintain their previous lifestyle.
Pressure from creditors: If one spouse files for bankruptcy after divorce, this can encourage creditors to pressure the other spouse to repay any debts owed. Occasionally this cascade effect might result in the other party filing for bankruptcy as well.

How Does Bankruptcy Affect an Ex-Spouse?

If a former spouse files for bankruptcy, this can have an impact on their former partner. When an ex-spouse owes their former partner alimony or child support, filing for bankruptcy does not remove these obligations, and the former partner cannot avoid paying the other spouse any attorney fees that the court ordered them to pay. In addition, if the ex-spouse acquired any debts solely in their own name, such as a loan or credit card, the other spouse is not responsible for these debts following the ex-spouse’s bankruptcy. However, if an ex-spouse has not repaid any debts taken on jointly and files for bankruptcy, the creditors will likely turn to the other partner to repay them, regardless of how the court split the debt in the divorce decree.

Contact a Divorce Attorney in Georgia

For individuals intending to file for both bankruptcy and divorce, the optimal sequence of actions often depends on the individual’s circumstances and those they may share with their current spouse. These include where the person lives, the type and combined value of assets and debts they have, and the bankruptcy type for which they plan to file. To learn more about divorce and bankruptcy and find out how a Georgia family law attorney with The Millard Law Firm can help individuals filing for bankruptcy and divorce at the same time, call (678) 319-9500 to schedule your personalized consultation today.