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Bankruptcy and Divorce: Which Should You File First?

For many couples, unfortunately, bankruptcy and divorce go hand in hand.

The statistics are quite discouraging and telling. Nearly 50 percent of marriages end in divorce. Of those, 22 percent of divorces are caused by money issues or disagreements about how to spend money.

If you and your spouse are contemplating bankruptcy and divorce, should you file for one before the other? Does it matter?

Marriage Debt

People file for bankruptcy because they can't pay their debts. In community property states, debts acquired during marriage are community property, meaning both spouses will be responsible for said debts. Since both spouses are drowning in uncontrollable debt, it may seem like an obvious choice to file for bankruptcy first, then divorce.

However, that is not necessarily true. Filing for bankruptcy before divorce, or vice versa, may be more beneficial depending on the amount of property you have, how much you want to spend, and your income levels.

Benefits of Bankruptcy First

Filing for a bankruptcy before divorce can save you a significant of amount of money for several reasons:

  • Filing costs -- The fee for filing a joint bankruptcy is the same as filing for an individual bankruptcy. If you foresee that both of you will need to file for bankruptcy, doing so before the marriage ends will save you a chunk of money on court fees.
  • Attorney fees -- Similarly, hiring one attorney to handle one joint bankruptcy will be cheaper than hiring two attorneys to file two bankruptcies. However, be sure to tell your attorney of your upcoming divorce to avoid any issues with conflicts of interest.
  • Exemptions -- In a bankruptcy proceeding, exemptions allow you to protect a certain amount of your property from being liquidated to pay off debt. Some states allow married couples to double their exemptions if they file jointly. If you have a lot of property, filing jointly before your divorce will allow you to protect more of your property.

Benefits of Divorce First

Filing for divorce before bankruptcy may be more beneficial if you and your spouse have high incomes.

To qualify for Chapter 7 bankruptcy, your income must be below a certain amount. When filing for bankruptcy while married, your joint income is used to determine your eligibility. If your joint income is too high for Chapter 7 bankruptcy, you may be able to qualify based on your individual income. In this case, you would want to wait until after a divorce to file for bankruptcy.

If you need help filing for bankruptcy and divorce, we suggest consulting an experienced bankruptcy attorney and an experienced family law attorney. Don't assume that an attorney will be familiar with both areas of law.

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