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Divorce and Bankruptcy

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How A New Jersey Divorce Bankruptcy Attorney Can Help

Many divorces occur because of financial problems leading to marital problems that become intractable. It is common for people who want to divorce to also need to file for relief under the bankruptcy code. Bankruptcy and divorce cases can have a big impact on each other, so it is important for you to determine which case you should file first. Our bankruptcy attorneys can advise you regarding the filing order of your cases.

Divorce and bankruptcy costs

The filing fees for bankruptcy petitions are the same for both individual and joint bankruptcy filings. This means that if you file a joint petition for bankruptcy with your spouse before you file for divorce, it can save both of you a significant amount of court filing fees. With a joint petition, you can split the cost of your bankruptcy rather than each of you paying the entire filing fee amount separately. Similarly, when you file for a joint bankruptcy and use the services of a bankruptcy lawyer, you can split his or her fees rather than each of you paying for your own separate bankruptcy attorneys.

You will want to tell your bankruptcy lawyer that you plan to divorce so that he or she can decide whether or not there is an ethical conflict regarding his or her representation of both of you. Because filing for bankruptcy prior to filing for divorce can make the issues about the division of debts and property much simpler, doing so can also potentially lower the expenses associated with your divorce as well.

How divorce and bankruptcy can affect each other

Bankruptcy and divorce matters can have a large impact on each another. Held in the federal court system, the decisions in your bankruptcy case will be binding on the state court’s decisions in your divorce. Bankruptcy doesn’t keep you from having the responsibility to pay certain divorce debts, however. For example, alimony and child support are not discharged in bankruptcy. This means that if they are ordered in your divorce case, you will still be responsible for paying them.

Bankruptcy can have a substantial impact on the property division of your divorce case. When you file a petition, all of the property you own will be frozen, meaning it will not be distributed to you and your spouse until your bankruptcy case is completed. This can result in your divorce matter taking a longer time, especially if you file under Chapter 13 instead of Chapter 7.

When you file for your divorce or bankruptcy is also important. If you file for divorce first and then file for bankruptcy, your required alimony and child support will need to be paid as priority debts, meaning they will be paid before any of your creditors are paid. If you instead file for bankruptcy and then file for divorce while you are still going through your bankruptcy, the family law court is allowed to order temporary child and spousal support.

A majority of people file for bankruptcy protection under Chapter 7 or Chapter 13 of the bankruptcy code. In Chapter 7 bankruptcies, all of the non-exempt assets owned by the filing debtor are liquidated by the trustee. Any proceeds from the sale of those assets are then used to repay creditors. Chapter 13 bankruptcy cases involve your repaying your debts through a repayment plan that lasts between three and five years. The bankruptcy court will not discharge debts that are incurred in your divorce if your spouse will be more negatively affected than you.

Depending on your financial situation and the circumstances surrounding your divorce, the benefits of filing for bankruptcy before filing for divorce may include:

  • Limiting the Costs of the Divorce Process – When going through a divorce, one of the most time-consuming (and costly) aspects of the process is dividing your marital property. If you hire a New Jersey divorce bankruptcy attorney to file for bankruptcy before you file for divorce, you may be able to use some of your marital assets to pay down your debts. So, not only can you secure debt relief through bankruptcy, but you can streamline the divorce process as well.
  • Eliminating Joint Debts – Dealing with joint debts during a divorce can be a complicated process. If you and your spouse have joint debts that you cannot presently afford, then eliminating these debts before going through your divorce may be the most efficient and most cost-effective option. 

Reasons to file for bankruptcy first

If you both need to file for bankruptcy, it makes sense to file for bankruptcy before your divorce jointly so that you can split the costs as previously discussed. This will help you to save money, make your divorce easier and result in fewer divorce litigation issues. You will need to consult with your bankruptcy attorney about the order of filing to determine which case you should file first.

Reasons to file for divorce first

One good reason to file for divorce before you file for bankruptcy is when you and your spouse’s income together exceed the limits for filing under Chapter 7. Even if you file individually, the bankruptcy court will still count your spouse’s income in the means test it uses to determine your eligibility. If the court determines that you make too much money, then you will instead have to file under Chapter 13. Since Chapter 13 bankruptcy takes between three and five years in order to reach a discharge of your debts, this can substantially prolong your divorce case. If this is true in your situation, you may want to complete your divorce and then separately file for bankruptcy afterward.

Consult With Our New Jersey Divorce Bankruptcy Attorneys

Financial circumstances vary from person to person. Consequently, it is a good idea for you to consult with both a family law and a bankruptcy law attorney before you file for either divorce or bankruptcy. Your attorneys can look at your situation and then help by advising you about which case makes the most sense to file first. Schedule an appointment with a bankruptcy attorney today to learn more about your own situation.