How to File for Bankruptcy Before the Final Decree

By Beverly Bird

Bankruptcy and divorce often go together, but it may not be best to try to handle both proceedings concurrently. The “how” of filing for bankruptcy remains pretty much the same whenever you do it: It’s just a matter of filing your petition and schedules and attending your meeting of creditors. But complications can result from having two legal actions going at the same time.

Bankruptcy and divorce often go together, but it may not be best to try to handle both proceedings concurrently. The “how” of filing for bankruptcy remains pretty much the same whenever you do it: It’s just a matter of filing your petition and schedules and attending your meeting of creditors. But complications can result from having two legal actions going at the same time.

Filing for Bankruptcy First

Filing for bankruptcy before you file for divorce has some advantages, particularly if you and your spouse file for bankruptcy together. It’s cheaper – you’ll only have to pay one filing fee instead of two – and it allows you to wipe the slate clean debt-wise before you negotiate a divorce settlement or head for trial. Removing marital debts from the divorce equation can streamline the proceedings considerably if you file for Chapter 7 protection, and Chapter 7 can usually be completed in as little as four months. Chapter 13 involves entering into a three-to-five-year repayment plan to satisfy your debts, so you and your spouse would also have to negotiate how you’re going to handle these ongoing payments after your divorce is final. You can bifurcate the bankruptcy when you divorce, effectively dividing the debts and payments into two separate proceedings, or you might be able to convert your Chapter 13 to a Chapter 7 proceeding, either jointly or after bifurcation. This might defeat the purpose of filing for Chapter 13 in the first place, however, if you did so to save property that you would otherwise have lost to liquidation if you had filed for Chapter 7.

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Filing for Bankruptcy During Divorce

If you’ve already filed for divorce, filing for bankruptcy before you receive your final decree can complicate your divorce immeasurably. Bankruptcy is governed by federal court, whereas your divorce is subject to state law. When these two legal actions conflict – and they will – the federal court will win. The state court can’t divide marital property in your divorce because it becomes part of your bankruptcy estate when you file for bankruptcy. The state court must therefore put your divorce on hold until your bankruptcy is finished, or get special permission from the federal court to deal with your property. Issues of custody and child support typically aren’t affected by your bankruptcy, however; the state court can make these orders while you’re in bankruptcy.

Filing for Bankruptcy after the Decree

If you wait to file for bankruptcy until after your divorce is final, it might not offer you much relief. Bankruptcy does not wipe out debts assigned to you for payment in the decree, at least if you file for Chapter 7. Chapter 13 is a bit more generous in this regard; marital debts assigned in a decree are sometimes dischargeable, but only under certain circumstances. No bankruptcy chapter will wipe out domestic support obligations such as child support or alimony. You and your spouse also lose the option of filing together after your divorce is final. You won't be able to file a joint bankruptcy petition, even if your debts are joint.

When Only One Spouse Files

If you file for bankruptcy on your own at any time – before, during or after your divorce – it has no effect on your spouse’s liability for joint debts. These creditors can pursue her for payment unless she files for bankruptcy as well, because they’re barred from trying to collect from you if you manage to discharge these debts in a Chapter 13 plan. If they were assigned to you in the decree, your ex usually has the option of taking you back to family court for reimbursement because she had to pay them even though the debts were initially assigned to you.

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The Interplay Between Bankruptcy & Divorce Law in Virginia

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