Bankruptcy – Before or After Divorce?

Married couples can file a joint bankruptcy petition. Filing for bankruptcy before a divorce has its own advantages. The biggest advantage is that you can file jointly. When you file jointly, the exemptions you can seek are greater than what you would be entitled to if you file as an individual.

California is a community state. In a community state all property either spouse acquires during the marriage is generally considered as community property that is owned by both spouses. So if you file jointly then all the community property you and your spouse own, as well as all of both of your separate property, is considered part of your bankruptcy estate. Likewise both spouses owe debts incurred by either spouse during the marriage even if one spouse incurs a debt without the other spouse’s knowledge.

The biggest benefit when you file a joint bankruptcy petition is the cost factor. The fees for an individual bankruptcy and a joint bankruptcy are the same. So if you and your spouse file a joint petition, you will have to pay the fee for a single petition whereas if you file individual petitions, both of you will have to pay the fees.

A joint filing can result in the discharge of joint debts but if your spouse files an individual petition for bankruptcy and you are a co-debtor, the creditors can come after you for the debt even if your spouse receives a discharge. Similarly if your spouse files an individual bankruptcy petition and receives a discharge of a marital debt, the creditors can try to recover the debt from even.

If you’ve filed for Chapter 7 bankruptcy and want to file a divorce, your bankruptcy case will probably end long before your divorce case does. However, it often makes sense to wait until a divorce is completed before filing for bankruptcy. Your property ownership and personal debt situation will be much clearer after your divorce becomes final— and your marital debts and property have been divided between you and your former spouse. On the other hand, if you assume responsibility for debts in a divorce, you will still owe those debts after your bankruptcy to the extent that the creditor goes after your ex. For instance, if you agree in your divorce agreement to pay off a particular credit card and then you file bankruptcy, your liability to the creditor is discharged, but you are still responsible to your ex if the credit card company sues him or her for the amount owed. For this reason, it sometimes makes sense to file bankruptcy before you assume responsibility for any debt in the course of your divorce. In Chapter 13 you are permitted to fully discharge debt you’ve assumed responsibility for in your divorce.

If you’ve filed a Chapter 13 case with your spouse, you may face some complications if you want to continue your case and get divorced. Bankruptcy law states that you must be a married couple to be eligible to file a joint case. If you divorce, you are no longer eligible to file (or maintain) a joint Chapter 13 case. The trustee could file a motion to dismiss your case.


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