It’s no secret that financial problems have broken up thousands of marriages over the years, so it’s no wonder why the words “bankruptcy” and “divorce” often go hand-in-hand. If you’re thinking about filing bankruptcy and divorce, you’re probably wondering which one comes first – a valid question indeed.
If you do end up filing bankruptcy and divorce, the timing of each filing will be critical to the outcome of your divorce case. However, which case to file first depends on your unique circumstances. In many cases, it makes sense to file bankruptcy first, but that is not always possible because sometimes the spouses cannot qualify for a Chapter 7 with their combined income and they have to file individually after the divorce.
Bankruptcy Takes Precedence Over a Divorce
As a general rule, a bankruptcy case takes precedence over a divorce. If you file for divorce and then you file for bankruptcy, the bankruptcy can delay the distribution of assets and debts (liabilities) in a divorce until the bankruptcy is discharged. In other words, a divorcing couple cannot actually “do them both at the same time.” The divorce will be on hold until the bankruptcy case is completed.
Also, bankruptcy deals specifically with debts that are tied to a debtor’s Social Security number. Since California is a community property state where both spouses are equally liable for the marital debt incurred during the marriage regardless of whose Social Security number is linked to a debt, the bankruptcy can impact out community debts are divided in a divorce. Lastly, bankruptcy treats a debtor’s income differently when they file depending if they are single, married, separated, or divorced.
Why File Bankruptcy Before Divorce?
Ideally, a couple will be on good terms and they’ll be able to file bankruptcy before the divorce, especially if it’s a Chapter 7 bankruptcy they are seeking. Couples save money by filing jointly, and they’re able to discharge certain types of unsecured debts before the divorce. It makes the debt division process a lot easier.
If a couple qualifies for a Chapter 7, they can usually finish it within 90 days of filing. On the other hand, if the couple is seeking a Chapter 13, they will both be locked into a 3-5-year repayment plan. Once it’s fully paid, then they can file for divorce – this is the least attractive option. If the married couple does not qualify for a Chapter 7, to avoid a Chapter 13, it may make sense to file for divorce first, then file Chapter 7 individually after the divorce if they qualify once they are single.
If you are planning on filing a bankruptcy and divorce, proper “timing” and planning are critical to achieving the best possible outcome. To explore your options further, contact our Orange County divorce firm to request a case evaluation.