Financial problems are a leading cause of marital tension. In addition, going from one household to two usually creates an increase in expenses. When facing both divorce and bankruptcy, it’s important to time each filing strategically to ensure the most favorable outcome. Here’s an overview of what to consider while deciding which should come first.

Why File for Bankruptcy First?

For couples willing to work together, filing joint bankruptcy can help streamline the divorce proceedings. When a marriage ends, it must be determined how property will be divided between the spouses. This includes not only assets that they own together but also any shared debts. However, having debts discharged through bankruptcy will eliminate the financial obligation for both parties, simplifying the property division portion of a divorce. A joint petition will also save money on legal and filing fees. 

Chapter 7 is a liquidation bankruptcy, meaning your assets will be seized to pay back creditors. However, every state provides exemptions, allowing debtors to keep certain assets. In some cases, spouses can take advantage of double exemptions.  

Why Divorce First?

Often, the decision to divorce first will depend on the type of bankruptcy that’s being filed. Those who don’t want to risk losing property may opt for Chapter 13 instead of Chapter 7. Since this involves a debt repayment plan that lasts three to five years, it may not be possible to wait that long before divorcing. 

In the event that Chapter 7 is more desirable, spouses will need to pass a means test to qualify. If their combined household income is too high to meet the criteria, it might be better to file bankruptcy separately once the divorce is finalized. 

If you’re preparing to divorce and declare bankruptcy, turn to Arndt Buswell & Thorn S.C. for help understanding your legal options. With expertise in both areas of law, they can provide sound advice on which filing timeline makes the most sense for your unique situation. Serving Monroe County, WI, and the surrounding areas since 1991, this team of skilled attorneys is committed to protecting the best interests of all clients. Call (608) 269-1200 to schedule a consultation at the Sparta office or (608) 486-2257 to speak with someone at the Bangor location. You can also visit them online to learn more about the cases they handle.