When You Should File for Bankruptcy During a Divorce
Many couples file bankruptcy just before, during, or right after a divorce,and this is often because separating assets and debts in a divorce leads to financial distress for one person or both. If you are planning on getting divorced and are considering bankruptcy, you should consider several things before you decide when the best time to file is for you.
Do Both of You Want to File?
Whether you are married or not, you have the right to file for bankruptcy individually. In other words, you can file for bankruptcy alone if you are married or single, which means you could file before, during, or after your divorce. Before you decide when to file, find out if your spouse also wants to file. If so, filing together could work out better for both of you.
When you file together, you pay one fee for the bankruptcy case. If you both file but choose to file individually, you will each pay a fee for the case. Many couples file together simply to save money on the fees.
Who Owes the Debts in the Marriage?
A second thing to consider is who is responsible for the debts in the marriage. In Michigan, couples are both generally responsible for marital debt; however, there are exceptions to this rule. If both parties are responsible for the debts in the marriage, both of you would benefit from filing.
If you do not both file and are both responsible for the marital debts, the person who does not file could end up owing 100% oft he debts,even if the divorce would split the debts equally between each spouse.
When a debt is in both names and one person in a marriage files for bankruptcy individually, the bankruptcy discharges the debt for the person who filed. The problem with this situation is that the creditors can still come after the other spouse for the full amount of the debt.
For example, if you owe $20,000 on credit card debts that you will split in half in the divorce, you technically should owe just $10,000. If you file for bankruptcy, the trustee would discharge the full amount for you, leaving you owing nothing on it. The creditors for the credit cards could never come after you for the debt, but they could go after your spouse for the full $20,000.
How Much Is Your Income?
The other main factor you should both consider with timing your bankruptcy is the amount of income you earn. Filing for Chapter 7 is easier and faster than Chapter 13, but you cannot use Chapter 7 if your income is too high. Chapter 13 requires a plan for repaying the debts you owe, whereas Chapter 7 offers forgiveness of debt.
You will probably need to visit a lawyer to find out if your income is too high. The lawyer will complete a means test,and this test will reveal if you qualify. If you want to file with your spouse but have a combined income that is too high, you would have to use Chapter 13 bankruptcy.
To avoid using Chapter 13, you could wait to file until after your divorce. If you wait until after your divorce, you would only have to include your own income and not both your sand your spouse’s. Because you would only need to report your income, you would likely qualify for Chapter 7.
As you can see, you have much to evaluate before you decide when to filefor bankruptcy,and you should always consult a lawyer before making
any major decision like this. Contact Phoenix Law if you a reready to learnmoreabout bankruptcy during a divorce.