Should Separating Couples File Bankruptcy Before or After Divorce?

Money issues are often a contributing factor (some may say the main factor) when couples seek a divorce.  However the divorce often fails to resolve the money issues, resulting in one, or sometimes both, of the divorcing couple still having more debt than they can afford to repay, even after completion of the divorce.

As a bankruptcy attorney, Yesner Law has almost none of the conflict of interest issues as a divorce attorney (except maybe a collaborative divorce attorney – a topic for a different blog post).  Often, we can represent both divorcing spouses together, to help make the debt go away (by virtue of a bankruptcy discharge), then they can get their divorce and start with a clean slate, both emotionally and financially.

However, if the couple is already divorced, then we can only help one former spouse at a time, meaning we might have to file two separate bankruptcy cases (thus doubling the costs to the now divorced couple).

What are some considerations to consider when weighing the option of filing bankruptcy before or after the divorce?

• If the parties each make sufficient income that, together, they would have to file Chapter 13 Reorganization, then they will be tied together financially for up to 60 months, thus making bankruptcy a bad option.
• If the couple has a lot of joint debt, then a joint bankruptcy is a good thing. We can eliminate the debt of both spouses before the divorce is final (even if divorce is filed in Court at the time the bankruptcy is filed), thus having the couple start their post-divorce life with a clean slate financially.
• If the couple has no joint debt and kept their finances separate, then filing bankruptcy jointly may be unnecessary – we would then consider filing for each individually, at any time pre or post-divorce.
• Similarly, if the couple has joint debt, but the divorce court has apportioned some of that debt to only one spouse, then a joint filing may be appropriate. The creditor does not care how the court apportioned joint debt and may hold the wife (for example) responsible to repay the joint debt, even if the divorce court ruled the husband is responsible to repay the entire debt.  Thus, a joint filing removes the debt for both spouses.
• Finally, some aspects of the divorce decree (mainly Child Support and Alimony) are non-dischargeable and bankruptcy cannot be used to eliminate those obligations – but may be used to eliminate other obligations making the child support or alimony more friendly to the ex-spouse’s budget.

Obviously, to be able to file jointly, the spouses have to be civil, or at least able to communicate with me as their bankruptcy counsel, and testify before the bankruptcy trustee together.  If the divorce is hotly contested such that the divorcing couple is unable to be in the same room, then a joint bankruptcy is going to be extremely difficult (or impossible).

For more information on Joint or Individual Bankruptcy, please subscribe to the Crushing Debt Podcast, on iTunes, Stitcher, and GooglePlay. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 727-261-0224 or email me directly at shawn@yesnerlaw.com.

Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.