Debt and other money issues are often at the root of divorce or the dissolution of domestic partnerships. But these problems don’t just go away once a couple separates. When debt is incurred by spouses or domestic partners in their joint names (and, in some cases, in just one party’s name), creditors can go after either party, regardless of a divorce or dissolution of domestic partnership order.
For this reason, when one or both of parties have racked up significant debt and look ahead to life as single individuals, they may see bankruptcy as the best way to address their financial situation.
Filing for divorce and filing for bankruptcy are, of course, two separate legal matters, but if both actions are deemed necessary, the timing for each filing is especially critical. Why? Because while there may benefits to filing jointly for bankruptcy protection, such a move is generally not permitted once a divorce becomes final. As for domestic partners, the Defense of Marriage Act prohibits joint bankruptcy filings for unmarried partners.
Benefits of joint bankruptcy filing include:
- Most attorneys charge the same fee whether one person or a married couple file for bankruptcy at the same time.
- Filing for bankruptcy before a divorce should simplify debt and property division issues and lower your divorce costs.
- In some circumstances, a married couple with dependents may find themselves eligible for certain types of bankruptcy relief, i.e., Chapter 7 discharge, for which a divorced individual with only visitation rights to his/her child(ren) may be deemed ineligible.
I often see clients who come in for both divorce and bankruptcy. If they both intend to file for bankruptcy, it generally does not matter which filing goes first. But if one party files for bankruptcy and the other party doesn’t, things can get messy.
When a bankruptcy action is pending, Family Courts are temporarily deprived of their jurisdiction over property and debt issues, but may still make orders with respect to the status of the marriage (or partnership), and such issues as child custody and child/spousal support. Once the bankruptcy matter has been settled, parties then can return to Family Court for orders relating to what remains with respect to asset and debt division—if any assets and/or debts are left over after the bankruptcy.
Sometimes it’s beneficial to file for bankruptcy after a divorce, but in general, it makes sense to get rid of the debt together before the divorce is granted. Whatever your situation, please be sure consult with an attorney before moving ahead with either a divorce and/or bankruptcy filing.
Are you in need of legal counseling? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from family law and bankruptcy/debt collection defense, to DUIs/criminal defense and landlord/tenant disputes.