Divorce represents one of the most significant life changes many will face emotionally and financially. It’s not uncommon for those undergoing this transition to face financial strain, with divorce being a frequently cited reason for bankruptcy filings. Below, we look at the connections between divorce and bankruptcy and how legal guidance during this challenging time can help protect your financial future.
The Financial Strain of Divorce
Divorce can have devastating effects on your financial situation. If you and your former spouse were already struggling financially, the divorce itself can be the final nail in the coffin. This can impact your immediate and long-term future. Consequently, divorce is, for many, the instigating factor in filing for bankruptcy.
The financial toll of a divorce is profound, frequently including:
- The expense of the divorce itself: Legal fees, court costs, and the cost of hiring other professionals to help you through the process contribute to the high cost of divorce.
- Changing financial circumstances: Post-divorce, individuals may deal with the loss of a dual income and suddenly having to be the sole provider for their household. Furthermore, child support and spousal support obligations can strain already tight finances.
- Pre-existing financial problems: Often, the financial issues that contributed to the divorce, such as debt accumulation, can be exacerbated in its aftermath.
With so much financial pressure, many individuals find bankruptcy to be their best option post-divorce.
Divorce First or Bankruptcy First?
If you and your soon-to-be ex-spouse are struggling financially, you may be wondering when the best time to file for divorce is. Is it something you should do together before you file for divorce? Or should you wait until your divorce is finalized? The answer will be different for each person.
Deciding whether to file for divorce or bankruptcy first is a complex decision with several variables to consider. Filing for bankruptcy first may simplify the property division process during the divorce and help you and your former spouse save on filing fees (filing jointly, you only pay one fee, whereas filing separately, you will each have to pay the same fee).
However, filing for bankruptcy first can cause delays in the overall divorce process, as you won't be able to proceed with your divorce while the bankruptcy case is active. Additionally, the outcome of your bankruptcy case can dramatically limit how different properties and debts can be divided during the divorce.
Chapter 7 Eligibility When Filing Jointly
By filing jointly before separating, couples may also find themselves eligible for Chapter 7 bankruptcy, which allows for the discharge of debts—a preferable route for many. This contrasts with filing for Chapter 13 bankruptcy, which involves a repayment plan over a three to five-year period. For those looking to sever financial ties cleanly and start anew, jointly filing for Chapter 7 can present a clear advantage.
Additionally, depending on your income level, filing individually may not qualify you for Chapter 7, as you may not pass the means test. However, with a joint household, you may be eligible. Consequently, filing jointly makes more options available to you.
The Role of an Attorney in Filing for Bankruptcy
While you can technically file for bankruptcy without an attorney, navigating bankruptcy during or after a divorce can be complex. Enlisting the guidance of an experienced attorney, like ours at Licata Bankruptcy Firm, might be in your best interest.
Though it may feel like a drastic step, in some cases, filing for bankruptcy is necessary to get a fresh start after a divorce. Making such decisions requires a thoughtful approach and, often, professional guidance to ensure the best possible outcome for your financial future.
Reach out to our firm today for a complimentary consultation. We are here to help guide you.
