Bankruptcy During Marriage

Liviakis Law Firm Team

Bankruptcy often occurs during a tumultuous period in life. Another tumultuous life event that often involves finances is divorce. Inevitably, bankruptcy and divorce sometimes are intertwined, so it’s important to understand the ramifications of filing bankruptcy individually versus jointly.

Individual versus Joint Filing

A married couple can file a joint bankruptcy, even if they are no longer living together and are in the process of divorce. For obvious reasons, working together to complete a bankruptcy filing may be difficult for a couple going through the struggles of a divorce. But the benefits are there if the married debtors can overcome those difficulties. The court fee for one joint bankruptcy will be substantially less expensive than two separate filings. Plus, attorney fees will probably be lower than if each debtor had to hire separate lawyers.

However, filing together can cause a number of complications for a divorcing couple. For example, the income of both spouses would be included in the calculation of the means test. The means test determines whether Chapter 7 bankruptcy is a viable option. Since a Chapter 13 lasts up to 5 years, a divorcing couple would likely want to wait until after the divorce is final if the current means test calculation rules out he possibility of a Chapter 7.

Depending on the contentious nature of a divorce, it may simply be impossible to work together to complete a bankruptcy filing. This could also make it impossible for one attorney to represent both divorcing debtors because a conflict of interest could arise.

Protecting Assets

Most folks focus on debts when they think about filing bankruptcy. But figuring out the consequences regarding assets can be just important for debtors, especially for divorcing couples. While some states allow married debtors to double the amount statutory exemptions in bankruptcy, California is not one of those states. Therefore, depending on the value of your assets, it may be better to complete the divorce proceeding and finalize the allocation of the marital estate prior to filing bankruptcy.

Final Decision

When making the final decision whether to final jointly prior to divorce or wait and file separately afterwards, one thing is for sure: it will be a lot easier and more efficient with the advice and guidance of an experienced bankruptcy attorney in your area.

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