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Are You Facing Both Divorce and Bankruptcy?

Sept. 25, 2019

Maybe you are having a run of bad luck, but suddenly you find yourself on the threshold of filing for both bankruptcy and divorce. Taken alone, either situation can be daunting, but together, they can be crippling to many La Mesa residents.

The problem is that you don’t know which case to file first. Is it more strategic to file for bankruptcy before getting divorced, or vice versa?

Financial insolvency can cause marriage woes

It is no secret that money troubles can provoke and exacerbate marital strife between spouses. In fact, it is estimated that 22% of divorces stem from arguments over finances.

But despite the statistics, it can sometimes be helpful to wait to file for divorce until after your debts have been discharged through a joint bankruptcy. However, this is certainly one of those situations where individual circumstances dictate the most strategic path forward.

Why you might want to file for bankruptcy first

As California follows a community property regime when dividing debts and assets in divorce, it can be beneficial to hold off on filing for divorce. That way, both spouses can benefit from having as many of their marital debts discharged as possible.

If both spouses plan to file for bankruptcy, it will also be cheaper to file jointly. That way, there will only be one set of attorneys’ fees and court costs as opposed to two. You also could potentially increase the number of exemptions that you have, thus allowing you to retain more property.

Why you might want to file for divorce first

Couples who are higher earners might benefit from divorcing first and then filing for bankruptcy if either or both want to file for bankruptcy using Chapter 7. Otherwise, your combined income may prohibit your being able to pass the means test to qualify for a Chapter 7 bankruptcy.

There are other reasons, too, to delay filing for bankruptcy until after your divorce is finalized. When the relationship deteriorates to the point of acrimony, the two of you may no longer be able to collaborate on any joint enterprises, including a joint bankruptcy filing.

Also, if you are planning to file for bankruptcy under Chapter 13, the pendency of the proceedings is either three or five years. That is a long time to remain legally tethered to a person with whom you no longer get along.

The bottom line is that this is not a decision to be made frivolously. Both parties should seek the counsel of legal advisers well-versed in bankruptcy and California divorce statutes.