Statistics show that 55% of all marriages end in divorce. And 39% of all divorced couples say that conflict over finances was the reason the marriage fell apart. Fights over money ruin relationships. That’s why we so often see divorce occurring when there is a bankruptcy. It’s because of this that it is critical to understand the intersection of the bankruptcy laws and divorce laws.
What Comes First – Divorce or Bankruptcy? No Simple Answer.
If you are facing divorce and a bankruptcy, the first thing you need to consider is timing. You must decide whether to file for divorce first or for bankruptcy first. (Filing the two together causes significantly more problems.) How you answer that question depends on a number of things: your income, your spouse’s income, what type of bankruptcy you are filing for or qualify for (Chapter 7 or Chapter 13), what assets you have, the costs of divorce and bankruptcy, and more.
There is no easy answer to this question. You must take into account both the facts of your situation, the divorce laws, and the bankruptcy laws before you can come to a final decision. That’s why you should sit down with an experienced bankruptcy attorney to discuss your situation and what is best for you. We have offices throughout Oregon and in Washington, and we offer free consultations.
Here are just two things you need to think about when facing bankruptcy and divorce:
Divorce and the Automatic Stay
Once a bankruptcy is filed, whether it is a Chapter 7 or a Chapter 13, the “automatic stay” immediately goes into effect. The automatic stay stops all attempts to collect on your debts and it freezes your assets and your property. The purpose of the stay is to allow the bankruptcy court time to sort through what debts you owe and what assets you have (if any) to pay them with. The automatic stay remains in place until your bankruptcy case is fully resolved (by discharge, dismissal or the case is closed).
Since dividing up a couple’s assets and property (in addition to other things) is what the divorce is all about, bankruptcy’s automatic stay means that the family court will be prevented from making any decisions or dividing up the marital property until the bankruptcy is completed. And that means that the divorce will take longer.
What Type of Bankruptcy?
Another factor to consider is the type of bankruptcy that you should file for. A Chapter 7 (“liquidation”) bankruptcy requires that you meet the income requirements of the “means test.” If your income compared to certain expenses is too high, you will be required to file for Chapter 13 (“reorganization”) bankruptcy instead.
If there is a big difference between what you earn and what your spouse earns, it might make more sense to file for divorce before you file for bankruptcy. On the other hand, if you earn significantly less than your spouse and you file for bankruptcy individually after the divorce is final, you may have a better chance of qualifying for Chapter 7 bankruptcy.
Then there is the fact that if you both agree to file for bankruptcy jointly, you may not qualify for Chapter 7 as a couple, because the income amounts are based on household size, and the income maximum for two people is not twice that of one person.
The intersection of bankruptcy and divorce may be a common occurrence, but it is not a simple one to navigate. But the good news is that you do not need to try to figure all this out on your own. We are here to help.
Let Us Help You Decide.
If you are facing filing a bankruptcy and either your spouse has filed for divorce, or you have both agreed to divorce, let us help you think through your options. We are bankruptcy attorneys with offices in a number of cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. We offer free consultations and we can help you. To set up an appointment, call us toll free at: 1-800-682.9568 or contact us here.