Bankruptcy and Divorce: Which Do I File First?

Bankruptcy and divorce often go hand-in-hand with one leading to the other. If you are facing the possibility of bankruptcy and divorce you should speak to the attorneys at Cohen and Cohen to determine which one you should file first, the timing of your filing, and the intersection of these two areas of law. These determinations will be made by the attorney using a detailed analysis of your income, assets, and debts.

Income, Marriage, and Bankruptcy Qualifications

Your income may determine what Chapter of bankruptcy you qualify to file and may be affected by whether you are married.

A Chapter 7 bankruptcy will allow you to discharge your debts in 3-5 months versus a Chapter 13 repayment plan bankruptcy causing you to make payments to your creditors for 3-5 years. The amount of income you are allowed to earn and still qualify for a Chapter 7 is based on the size of your household. The more people in your household, the more income you are allowed to earn and still qualify.

In addition, you may only file a joint bankruptcy if you are married. This means that if you get divorced and your children now live with your ex-spouse, then none of these people may not be part of your household. You may have previously qualified for a Chapter 7 bankruptcy, but due to your smaller household you may be required to file a Chapter 13 repayment plan.

Protecting Assets

Divorce divides assets between spouses and bankruptcy liquidates assets that are not protected by bankruptcy exemptions.

If you file for divorce prior to bankruptcy, then the divorce court may allocate assets to you. However, if a bankruptcy is filed after the division of assets, then the assets may not be protected from creditors. By filing bankruptcy prior to divorce you may be able to increase the protection of your assets and eliminate this problem by utilizing the bankruptcy exemptions allowed to a married couple.

If you are at risk for filing bankruptcy, but decide to hold off and get a divorce first, then you should be aware that filing a bankruptcy in the middle of your divorce will stop property from being divided due the automatic stay. The automatic stay stops actions against your property to protect it from your creditor’s collection efforts. Filing bankruptcy in the middle of a divorce may result in your divorce taking longer as the assets will need to be dealt with in bankruptcy first.

Debts in Bankruptcy and Divorce

When you file for bankruptcy your credit cards and dischargeable debts are wiped out to give you a fresh start. In the alternative, the divorce court can order you to pay the debts of your spouse. If you expect your debts to be paid by your ex-spouse, then you should know the limitations of such an arrangement.

The Court’s order for a party to pay debt does not change who owes the debt to the creditor. The obligation created by the divorce court requiring the payment of another person’s debt is an obligation to that person and not a new obligation to the creditor. If you have a credit card in your name and your spouse fails to make a payment on that credit card, then you will face collections, lawsuits, and negative credit reporting. If your spouse may already be bankrupt or unable to pay their own bills, then you may be thrust into bankruptcy yourself after divorce if payment of these debts exceed your income.

Taking the Next Step with Bankruptcy and Divorce

The next step is to meet with an attorney to review your options and protect your interests. In order to determine whether it is best to file bankruptcy or divorce first requires a thorough review of your financial situation.

The attorney will look at your income, assets, and debts to formulate a strategic plan. You can then make an educated decision about your choices. There are many complicated paths that may help or hurt you when you are reviewing bankruptcy and divorce. This article just barely scratches the surface. If you are getting divorced and bankruptcy is likely you should call us right away.

We Can Help You Protect Your Interests

If you need assistance in a bankruptcy or divorce matter, at Cohen and Cohen, we can help you understand your options, make important legal decisions, and will provide you with professional representation.

Speak to the Bankruptcy and Divorce Attorneys at Cohen and Cohen to see how our experience can help you.

To schedule an initial consultation to review your case with a Colorado Bankruptcy and Divorce Attorney at our convenient central Denver location call 303-933-4529.

About the Author: Robertson Cohen

Rob Cohen is a Managing Partner of Cohen & Cohen, P.C., serving clients in Colorado and Wyoming. He’s a Chapter 7 Bankruptcy Panel Trustee, certified mediator, and has administered over 8,000 Chapter 7 bankruptcy estates.

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