If you believe that your future includes both filing for divorce and filing for bankruptcy, you may be unsure as to which task you should tackle first. Both events may feel like massive undertakings separately, but when you combine them, they may overwhelm you to the point that you don't know where to begin.
Keep reading for a few guidelines concerning the steps you should take when you need to file for bankruptcy and for divorce. The ideal course of action will vary dramatically based on your personal situation, such as your financial picture and the type of bankruptcy you qualify for.
When You Should File for Bankruptcy First
In certain situations, you should file for bankruptcy before seeking a divorce from your spouse. If you believe that you and your spouse will qualify for Chapter 7 bankruptcy, file for bankruptcy first.
Chapter 7 bankruptcy requires you to liquidate non-exempt assets and use the proceeds to repay some of your debt. However, if you don't have any non-exempt assets, the court will have nothing to liquidate.
The court still discharges your qualifying debts, and you and your spouse will split your exempt assets when you file for divorce. Since the bankruptcy dissolves your qualifying debts, you won't have to worry about dividing these debts in your divorce proceedings.
Some states permit you to double the amount of your asset exemptions when you are married. North Carolina is one of those states. This means that you and your spouse can each claim the full amount of the exemption.
For example, North Carolina allows single individuals filing for bankruptcy to exempt up to $35,000 in home equity. When you file as a married couple, this figure jumps to $70,000.
There are strict income restrictions in place for Chapter 7 bankruptcy, and they vary based on the size of your household. In certain situations, you and your spouse may not qualify for Chapter 7 bankruptcy after your divorce but will qualify while still married. This occurs frequently in situations where one spouse earns significantly more money than the other.
The fees for filing for bankruptcy are the same for couples as they are for single filers. Keep this in mind if you know you will struggle to come up with the cash to pay your attorney's fees and court costs.
When You Should File for Divorce First
If you make too much money for Chapter 7 bankruptcy or don't want to surrender your non-exempt assets, Chapter 13 may be a better fit for your situation. Chapter 13 bankruptcy is actually a repayment plan that allows you to keep your assets while repaying portions of your debt for a period of three to five years. Your repayment percentage depends on the type of debt you hold, your income, your expenses, and your assets.
Since Chapter 13 bankruptcy has such a long timeframe, you'll likely want to file by yourself. If you and your spouse file for Chapter 13 bankruptcy together, you are both responsible for making the payment. Few individuals want to be that financially connected to their ex-spouse for years at a time.
If you or your spouse will have to pay a high amount of alimony or child support, you should consider filing for divorce first. The reasoning behind this guideline is that your expenses influence the amount of your Chapter 13 payment. Therefore, you’ll want to know how much alimony or child support you'll have to pay when providing your expenses to ensure your information is accurate.
Do not attempt to file for bankruptcy and divorce at the same time; this creates a logistical nightmare, and the bankruptcy proceedings will delay your divorce. Instead, tackle one item at a time.
Still not sure if you should get divorced before filing for bankruptcy? Contact W. Mack Rice, P.A. Attorney at Law, today for a free consultation.