If you and your spouse are experiencing two very closely related issues, you may need to take legal action of one kind or another soon. Both divorce and bankruptcy can be huge stumbling blocks, sure to change your life in a big way. You may be wondering what you should take care of first: the divorce or the bankruptcy? Read on for some guidance on which major issue to tackle first.
When filing for bankruptcy, consumers can generally choose between two: chapter 7 or chapter 13. Which type of bankruptcy you choose could affect where divorce falls in the order. You can check a handy comparison table created by the American Bar Association to help you make the bankruptcy type decision.
Chapter 13: This is also known as the "reorganizational" form of bankruptcy, since it allows filers to pay off their debts but gives them more time to do it. This type of bankruptcy is not over very quickly; it can take several years to have the debt completely paid off. Filing for divorce before filing for a chapter 13 might be best, since you may end up with less debt to deal with once your divorce goes through.
Chapter 7: This type of bankruptcy is known as the "liquidation" bankruptcy, since the bankruptcy trustee has the power to seize assets to help pay your creditors. If you use this form of bankruptcy, you can say "So long!" to your credit card debts. Credit cards fall into the unsecured category, and this means that the debt is dissolved without you having to lose any property in the process.
Finances can be a major problem, whether they've got you battling it out with your spouse in the time period leading up to the divorce or they are bothering you through the divorce process. If you can virtually eliminate that problem with a bankruptcy filing, that could make for a less-stressful divorce process.
A Timely Process
Unlike a chapter 13 bankruptcy, you can be completely finished with a chapter 7 filing in a matter of months. The speed depends on the size of your bankruptcy (dollar amount) and the case load in your particular federal district, but most bankruptcies happen relatively quickly. For those wanting to divorce, it might mean putting off the divorce for just a few months, and it could be well worth it to enter into single life with less of a debt load.
This facet of bankruptcy allows filers to remove some of the value of their assets, like their home and car, to avoid having to forfeit them. In some states, married filers get a double exemption amount, which could allow them to have more property to divide when they divorce. If you state allows double exemptions, you would be wise to declare your chapter 7 prior to your divorce.
For more information, talk to a lawyer who specializes in bankruptcy law services.