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How to address bankruptcy with divorce

On Behalf of | Mar 27, 2020 | Bankruptcy

For many couples, money is a major source of problems in their marriage. This may be due to the fact that each spouse has a different approach to spending or saving money. It may also be due to the fact that the couple simply cannot keep up with their debt load and the ongoing stress of dealing with credit collection agencies and a mound of bills they cannot pay takes its toll on their relationship.

When financial problems lead a couple to decide to get a divorce, they may still have to address their outstanding debt. Bankruptcy may afford divorcing couples the ability to move forward individually free of not only each other but of unmanageable debt. However, they must decide whether to file for bankruptcy first and then divorce or vice versa.

Filing for bankruptcy first may allow couples the chance to reduce their debt load, thereby simplifying their property division negotiations as debt as well as assets must be addressed in that process. Exemption allowances are higher for joint bankruptcies than for filings by individuals so a pre-divorce bankruptcy may also enable people to keep more of their assets.

People should carefully evaluate their assets and debts to decide what type of bankruptcy is best for their situation. For example, homeowners may want to utilize a Chapter 13 bankruptcy to avoid losing their homes. However, this type of plan takes three to five years to complete, meaning the couple may be linked through the bankruptcy for this duration. They should also be honest about their ability to collaborate on a joint bankruptcy.