Cleaning Up My Financial Disaster

Posted on: 1 February 2022

Both divorce and bankruptcy are major financial moves but doing them together could require some delicate planning ahead. To find what to do first and why, read on.

What Is Your Income Situation?

You may not be allowed to file for chapter 7 if your income is too high. Married couples must use both of their incomes to qualify. To determine eligibility based on income, compare it to the median income in the state where you plan to file your bankruptcy. If it's too much, you might want to speak to your lawyer about the means test. This test is part of the bankruptcy application form for those with higher incomes and it allows some filers to use certain deductions to remove income and thereby be allowed to file. For those who cannot file even after means testing, waiting until after the divorce is final may work better since you won't need to use both incomes then.

What Is Your Debt Situation?

When a couple has a lot of marital debt, it can make for a very contentious divorce. It might be easier to deal with the debt divisions of divorce if some (or all) debt goes away with bankruptcy. Commonly, couples are deep into credit card debt and that is usually totally discharged with chapter 7. Also being discharged, in most cases, is personal loan debts, medical debt, old tax debts, and more. The only problem is that you would have to put off your divorce until your chapter 7 was final, however, and that might take several months. It's also important to consider what type of debt you have because you cannot get a discharge of certain kinds of debt like new tax debt, student loan debts, legal debts, back child support, and more.

Take Advantage of Being Married

A good reason to file bankruptcy now rather than later involves the ability to gain more exemptions while still married. Exemptions allow filers to keep more of their property, like the family home, vehicles, and more. In some states, married couples can use double the usual number or values of exemptions when they file jointly. If you have a lot of property that could be seized with a chapter 7 action, speak to your bankruptcy lawyer about the concept of double exemptions and how to use them to your advantage.

You may want to consult with a bankruptcy law attorney before you go through with a divorce and find out how one can affect another.