Bankruptcy and Divorce

Bankruptcy and Divorce

Many of my clients ask if they should file for bankruptcy at the same time they are filing for divorce. While there is no “one right answer” that fits every case, in general, it is recommended to do them separately. This leaves one more question: which should come first, and which should come second? Again, the answer depends on your circumstances, so let’s explore the factors involved.

In most cases, couples file for bankruptcy prior to filing for divorce. There are several reasons for this. Once bankruptcy is filed, the bankruptcy court imposes an “automatic stay” on your combined debts. This automatic stay does two things: first, it imposes a “cease and desist” on creditors and debt collectors – that is, they can no longer hound you for payment. Second, it imposes a freeze on your assets. This “freeze” is imposed throughout the entire bankruptcy proceeding.

Imagine that you file for divorce immediately after filing for bankruptcy, and both proceedings overlap in time. This can usually prolong the divorce proceeding. This is because one of the primary functions of a divorce court is to divide assets and debts among the spouses. But this cannot be done until the bankruptcy is finished, because (as we just learned) the bankruptcy court put a freeze on those assets until the bankruptcy is accomplished! This means that the divorce proceedings will drag on until the bankruptcy proceeding is completed.

Bankruptcy does not put a hold on other divorce issues such as child support, custody, and visitation.

In any type of bankruptcy filing, the bankruptcy judge may lift the automatic stay to allow the parties to return to state court. In a short-duration chapter 7 case, it usually makes sense to wait until the bankruptcy is completed. The automatic stay terminates when a discharge is issued. Because of the length of a chapter 13 case, an application to lift the stay is often necessary to allow the parties to return to state court.

My clients file for bankruptcy and divorce on a regular basis. I am here to help you successfully file for bankruptcy no matter what your marital status may be. Contact me today to find out how I can help. Remember that this is life after bankruptcy and it starts here.