Divorce and a bankruptcy tend to go hand and hand. Often the question comes up, what should come first, the bankruptcy or the divorce. Depending on the facts of your specific case one should consider the consequences how a divorce may impact a bankruptcy filing.
Important considerations are: do the parties want or need to file the bankruptcy together, what type of bankruptcy are the filers eligible to file, is there real estate involved, and what does the division of the assets, and the debts look like. Once the divorce is final, the couple can no longer file a bankruptcy case together. Settlement agreements in the divorce decree can also affect bankruptcy. For example: is the filer entitled to a large settlement from the divorce, or is the filer entitled to equity in a home or are they entitled to their ex-spouse’s retirement account? The divorce decree should be reviewed carefully before the bankruptcy is filed.
Martial liens are common in divorce decrees but is important to remember that marital liens are not judgment liens, they are methods of distributing property in a dissolution proceeding. As is the decree itself, just a method of distributing property in a dissolution proceeding. The decree does not bind other parties, it is a private agreement between the parties. For example, if spouse 1 agrees to assume all joint debt in the divorce, that is merely a private agreement made between the parties, it does not bind the creditors of the joint debtor. If spouse 1 then files bankruptcy and spouse 2 does not, spouse 2 is still liable on the joint debt. This means spouse 2 can be sued and be pursued for the debt. The bankruptcy filing by spouse 1 does not impact the liability of the other spouse.
There is no right answer on when to file bankruptcy, but if filing bankruptcy after a divorce, certain settlement agreements and debts can be impacted. It is important to speak with your divorce attorney, and bankruptcy attorney about your intention to file a bankruptcy and to structure the decree in a fashion that will not be impacted by a later bankruptcy filing.
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When determining if a bankruptcy should be filed before or after a divorce the couple should consider the bankruptcies for which they qualify, the division of assets, the division of debts, and most importantly if filing a joint case, can the debtors, at least temporarily, work together long enough to file a honest and accurate petition with the court. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.
