A few years ago, I was in a pretty serious car accident. During the aftermath, I became really familiar with a lot of different types of lawyers. I worked with personal injury lawyers, insurance lawyers, and many others. Perhaps the most important, though, was the estate planning lawyer. I was really young, and neither my wife or I had thought about starting a will. But the accident kind of scared us into it. What would happen if one of us were to die? Even when still in the hospital, I was working with the lawyer to draw up a will. Now, I have some peace and security about what the future will be like if something should happen to me. And I have a lot of experience working with various types of lawyers! The accident was kind of a blessing in disguise in that way.
If you and your spouse have agreed to part ways, then the right time to divorce might be sooner rather than later. If you add a need to declare bankruptcy into the equation, however, you might want to consider how your filing order could affect both of these major legal moves. Read on for a discussion of how to set priorities given your own situation.
The Income Limit Rule
One aspect of bankruptcy that could influence your decision revolves around your income. A retooling of the bankruptcy code has placed a new test on filers known as the means test. If you have the "means" to pay your bills without filing for bankruptcy then you may be barred from that filing. In this case, "means" refers to income. If you and your spouse's income together make it impossible for either of you to file while still married then you would be better off waiting to file after your divorce when you only need to declare your own income.
Loss of Property
A chapter 7 filing could put property at risk since the bankruptcy court is allowed to seize certain property and sell it to help pay off creditors. Until you divorce, all property is considered marital property and is subject to division through divorce. Barring your own property that is exempt from the marital property pie, you could stand to lose what would be considered marital property with a bankruptcy filing that comes prior to a divorce. The chances of losing property to a bankruptcy filing depends on several factors, such as its value, how much you still owe on it, and what the exemption for that property is in your state.
Dealing with Debt
The division of marital debt during a divorce can be a painful and contentious issue, but one that might be eliminated if you go through a chapter 7 bankruptcy before your divorce. Bankruptcy is very good at making unsecured debts go away without having to sacrifice any property whatsoever. Unsecured debts usually mean credit card debt, which many couples have substantial amounts of.
Community-Owned Debt
On the other hand, you may not be responsible for all of that secured debt. If it is your spouse that ran up those credit card bills, then a divorce where the judge assigned the debt payment to the spouse could mean that you won't even need to go through a bankruptcy. It should be noted that those that live in community property states are 50% responsible for the marital debts regardless of who owns or caused the debt.
This complicated issue deserves not just serious thought, but professional help. Speak to a bankruptcy and divorce attorney and make the best decision possible for both of you.
For more legal help in other aspects of your life, reach out to a local family law or criminal lawyer.
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12 September 2018
