With Divorce and Bankruptcy in Your Future: Which Should Come First?

Posted by Wesley Scott on April 23, 2014 at 9:37 AM
Wesley Scott

divorce and bankruptcy 4Divorce and bankruptcy are both realities of life for many individuals. No one sets out in a marriage with the intent to file for divorce just as no one sets out in life with the intent of filing a bankruptcy. However, if divorce and bankruptcy are a future you are preparing for, you’ll need the experience and guidance of an experienced bankruptcy attorney.

Firstly, you’ll need to determine which order your divorce and bankruptcy should occur. In some cases, it may be prudent to file the bankruptcy case first while you are still married rather than waiting until after the divorce. Some couples choose to work together to file a joint bankruptcy to wipe out debts prior to the divorce action to make the divorce cleaner and smoother.

Divorce law falls within the jurisdiction of the state while bankruptcy law is under federal jurisdiction. Typically, federal law will trump state law; however, in regard to a divorce and bankruptcy, there could be issues that create complications if your cases are not handled with the mindset that what you do in the divorce could impact the bankruptcy and vice versa. Having experienced Minnesota bankruptcy attorneys who know how to handle this issues and complex matters will reduce the likelihood of problems.

Joint Debts in Divorce and Bankruptcy

When you file for bankruptcy, if you have debt that is joint with another person, the creditor can pursue that person for the entire debt once your liability for repayment is discharged in bankruptcy. Your co-debtor will become responsible for the entire debt. This happens frequently in bankruptcy cases where only one spouse files a bankruptcy case but both spouses are jointly liable on the marital debt. A divorce action can complicate this matter and cause problems for both spouses in the future.

In most divorce actions, the family court divides marital assets and debts. Each spouse is charged with the responsibility of paying certain marital debts and their own individual debts. Unfortunately, a family court order does not modify the terms of the original contract with the creditor. Therefore, if the spouse charged with paying the debt under the family court order fails to do so, the creditor can pursue the other spouse for the entire debt. The “innocent” spouse’s only recourse is to take the non-paying spouse back to family court for contempt.
Now, let’s throw bankruptcy into the middle of the situation. Assume that the wife files a bankruptcy; note: she was assigned the joint American Express account debt by the family court. Her bankruptcy releases her of any liability for the payment of this debt. American Express then seeks payment of the full debt from her husband. The husband has a choice of filing his own bankruptcy case to release the debt or taking his wife back to family court for contempt.

As you can see, debt, divorce and bankruptcy can get messy. Therefore, it is much better to discuss your options with regard to filing divorce and bankruptcy with experienced attorneys to decide the best course of action for your particular situation.

Income, Divorce and Bankruptcy

In order to qualify to file a Chapter 7 bankruptcy, your income must be below the state median income standard. Filing a Chapter 7 bankruptcy means the difference between having your debts discharged and the case closed within 4 to 6 months verses filing a Chapter 13 case that will go on for three to five years and require monthly payments. A family of four (father, mother and two children) may easily qualify for a Chapter 7 case because the income of both spouses combined is less than the average median income for a family of four. However, if you break that family up into two households, the income of the spouse who does not have custody of the children may exceed the Chapter 7 guidelines requiring a Chapter 13 case to be filed.

Therefore, if you and your spouse are considering divorce and you are facing overwhelming debts, it may be in your best interest to file bankruptcy prior to the divorce. You may be able to wipe out most, if not all, of your debts through a Chapter 7 bankruptcy case, which will make your divorce action less stressful and complex.

Who Do I Call with Questions About Divorce and Bankruptcy?

Because divorce and bankruptcy are both complex legal issues we highly recommend, before you proceed with any legal action, consulting with an attorney to ensure you are doing what is best for yourself, your assets and your children. Request a consultation below and let us help you during this difficult, emotional time.

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Topics: Bankruptcy

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