Divorce is one of the biggest challenges many will face in life, yet the same can be said for filing bankruptcy. With money issues being one of the most common reasons for divorce, the one or both parties in a divorce may also need to file bankruptcy protection as well as divorce. Like it or not, bankruptcy will have an impact on the divorce, making it even more challenging and stressful whether it happens before, during or after the divorce.
Tips for handling this challenge
Generally speaking, wait to file until there is a plan for addressing both issues. Here are some tips to consider during the planning process:
- Do not do them at the same time: It is not always possible to do this, but doing them at the same time leaves many unanswerable questions.
- File bankruptcy first: The circumstances for each individual and couple are different, but financial experts think it is best to resolve the financial issues before terminating the marriage. However, the automatic stay during bankruptcy makes it harder to divide assets, which subsequently will drag out the divorce process.
- Joint or individual bankruptcy: Figure out if individual or joint bankruptcy makes the most sense for managing assets and debts.
- Chapter 7 is faster: This so-called “fire sale” approach liquidates many of the assets, but it takes place in three to six months, rather than Chapter 13’s restructuring of debt that takes three to five years.
- Not all debt is discharged: Bankruptcy does protect the filer from such obligations as alimony/spousal maintenance, child support as well as money owed to the government, court fines or student loans.
Hard decisions and serious planning
Those going through this process are advised to consult attorneys here in western New York before beginning this process — one for the family law issues and one for bankruptcy. They can provide guidance that specifically addresses the needs of your specific case, particularly if the estate is a large and complicated one.