If you know that your marriage is ending and you also know that you will be filing for bankruptcy, which should come first? Having to undergo just one of these life-altering events is stressful enough and you will need help to make a good decision. Take into consideration the following points:
Chapter 7 or 13? Chapter 7 is the quickest to accomplish, usually completed in a few months. By comparison, Chapter 13 is a two to five year debt repayment plan. If you decide to go the Chapter 13 route, you would want to wait until the divorce is final, and file on your own, keeping in mind that the division of property and debts will be different now that the marriage is over. The Amercian Bar Association has a comparision chart here for more info.
Filing Chapter 7 before divorce could mean a quicker, easier and less expensive divorce. With this type of bankruptcy, all of your debts, with the exception of some taxes, student loans, etc, will be wiped out. For your divorce filing this means no haggling over who owes what and how much, eliminating one major area of contention in most divorces and lessening the chances of going to court and paying the accompanying attorney and court fees.
Filing Chapter 7 before divorce could mean you get to keep more property. In bankruptcy, there are limits to what property, such as homes, land, vehicles, jewelry, household goods, etc that you get to keep. These are called exemptions, and the rules vary from state to state. In most states however, you will get double the exemptions if you file jointly instead of single filing.
There are cases where it is better to wait and file for bankruptcy on your own once the divorce is final. One major reason revolves around the issue of your household income. To qualify to file Chapter 7 bankruptcy, you must pass what is known as the means test. Your income must not be higher than the median income for your household in your state. To help give you a broad idea of median incomes for all states, you can find a calculator here, but make sure to speak with your attorney since there are too many variables in the means test, such as household size and what constitutes income, to be completely accurate. If your joint income is too high to file bankruptcy jointly, you may only qualify if you file on your own after the divorce.
This complicated situation is best handled by a divorce and bankruptcy attorney like Schneider Steve Atty At Law. These experts will be an invaluable resource for the determination of order of filing.