If you and your spouse have made the decision to get divorced and are in poor financial shape, you might also want to talk about filing for bankruptcy. Bankruptcy is a great way to get out of debt, but you should determine if it would be better to file before you get divorced or after. To make this decision, you will need to know the following important things.
The Main Differences In The Two Types Of Bankruptcy Chapters
Chapter 7 bankruptcy offers forgiveness for all unsecured debts, and this is often the preferred chapter because of that. With Chapter 13, you will have to repay some or all of the debts you owe, including unsecured debts. Unsecured debts consist primarily of debts that have no collateral, which are debts like credit cards and medical bills.
Another difference is the amount of time each chapter takes. For Chapter 7, your bankruptcy will take effect almost immediately, and this means you will have instant relief from your debt. Chapter 13 takes between three to five years to complete.
You Have The Option To File Alone Or Jointly
When a person that is legally married decides to file for bankruptcy, the person can file alone or jointly. If you both want to file, you could go ahead and file before or after the divorce. If just one of the spouses wants to file for bankruptcy before the divorce is finalized, they are free to do so; however, it can often be more beneficial in this situation to wait until the divorce is through.
Income Is A Major Factor In This Decision
When a couple files for bankruptcy, both of their incomes are taken into consideration when determining which chapter they qualify for. When a single person files, only that person's income is taken into consideration. When a married person files for bankruptcy alone, the income from both of the spouses is taken into consideration. The reason this matters is because a person's income is the basis for determining whether the person can file for Chapter 7 or Chapter 13.
Therefore, if you decide to file together or on your own before the divorce is through, both of your incomes will be counted, whereas if you wait until afterwards, only your income will be counted. This is important because to qualify for Chapter 7, the counted income must be below the median state income. If it is not, you will be required to use Chapter 13 if you decide to file.
Tips For Making The Right Choice
Choosing to file now or choosing to wait is a personal preference, and it really will depend on your income and whether or not one or both of you want to file. If you both want to file, make the decision by looking at your combined income. If jointly you can file and qualify for Chapter 7, there is really no reason to wait. If you both want to file and your income is higher than the state median income, then waiting until your divorce is final before you file would benefit both of you.
It's also important to know that filing for bankruptcy before or after your divorce will not really affect your divorce; it will only affect your financial situation. It would offer a chance for you to have a fresh start, and this is important after a divorce. Once the divorce is final, you will each have to support yourselves, and finding a way to get rid of the debt you have can make this a little easier.
There are a lot of things you may want to do to put yourself in a better financial position during and after your divorce. If you have any questions about this, contact a divorce lawyer from a law firm like Gordon Liebmann Attorneys at Law today.