Divorce and Bankruptcy 101 – Basics to Consider

I work with David M. Offen, Esq., an experienced bankruptcy attorney in Philadelphia, PA. Together with colleague Katherine K. Wagner, Esq, a Somerset County, NJ family law attorney, we present this quick guide to Divorce and Bankruptcy.

Should I File Bankruptcy Before, After, or During Divorce?

When to file bankruptcy depends wholly upon why you are filing. Are you filing to surrender a jointly-owned car or home you can’t afford? Are you filing to discharge joint credit card debt? Or, is it only one of you who needs a discharge of unsecured debt or to surrender a car or a house?

If you need to discharge joint debt or need to surrender jointly-owned property, then you should file before the divorce because bankruptcy law dictates that you can only file a joint petition if you are legally married.

If the problem is with the debt of one of the parties, then the timing of an individual filing is not an issue. However, filing bankruptcy during divorce proceedings is generally ill-advised because the bankruptcy will delay the divorce.

Should We File Bankruptcy Jointly or as Individuals?

First, consider the relationship you have with your soon-to-be former spouse. You must be able to communicate amicably and work together as a team if you are going to file a bankruptcy petition jointly.

Second, if you are able to work together, filing jointly while still married will streamline the process and also cost you both less than filing individually. Here are some common costs, that will be doubled if you each file bankruptcy individually:

  • Attorney Fee
  • Court Filing Fee
  • Fee for pre-filing Credit Counseling Course
  • Fee for post-filing Debtor Education Course

Regardless, if your relationship is not amicable, do not attempt to file bankruptcy jointly.

Should I File Bankruptcy Under Chapter 7 or Chapter 13?

This decision depends upon why you need to file. If you are dealing with primarily unsecured debt such as credit card and medical bills, and your assets and income do not exceed the Chapter 7 limits, Chapter 7 might be for you.

Chapter 7 bankruptcy is a 4-6 month process by which you disclose all of your income, assets, expenses, and debts to the court, and if the court and Chapter 7 Trustee approve, you receive a discharge of your unsecured debt. You can also surrender a car or home that you can no longer afford, and be discharged of that debt.

Timing is Key

Here’s where the timing of the filing is important. Let’s say that jointly, your income and assets render you ineligible to file Chapter 7. If you were to file right away you would have to file under Chapter 13, which entails a 3-5 year partial repayment plan followed by a discharge. However, after your divorce, your income and assets may render you eligible to file Chapter 7 instead. Here’s where you consult with your bankruptcy attorney as to which timing would be best for you.

If you are behind in your mortgage payments and contemplating divorce, yet one of you wants to keep the house after the divorce, then Chapter 13 would allow that person to repay the arrears over time. Bear in mind however that if you file a Chapter 13 case this will delay your divorce for that 3-5 year period.

What if Only One of Us Files Bankruptcy?

If you file a bankruptcy petition and your soon-to-be-ex does not, your ex will still be on the hook for any joint debt unless and until he or she files a bankruptcy petition. The same goes for you if your ex files.

Author’s BioVeronica Baxter is a writer, blogger, and legal assistant operating out of Philadelphia, Pennsylvania.