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When bankruptcy and divorce go together

The end of a marriage is often a costly affair, and more than a few marriages end because of existing financial obligations and stressors, so it is not too surprising to find out that divorce and bankruptcy often go together. Due to the complicated nature of both, it's also not too surprising to learn that people often make mistakes that cause unforeseen consequences for their financial futures.

When to file

The American Bar Association website discusses the advantages and disadvantages of filing for bankruptcy at various stages of the divorce process.

  • While married: Couples considering a divorce should realize that filing for bankruptcy prior to the proceedings does not necessarily mean that both spouses have to file together. There are also a variety of benefits to filing a joint bankruptcy before the divorce, including savings on things like court costs, since there will only be one filing for both spouses. It also simplifies the divorce proceedings by discharging most if not all of the marital debt.
  • Simultaneously: This is listed as an unusual and unlikely scenario, but the article does point out that it might occasionally be necessary due to limiting circumstances, such as when there are a large number of financial stressors on one spouse and an immediate order is needed regarding custody or support. It's not advantageous to have to attempt both at once, but it might occasionally be necessary.
  • After divorce: This is a common solution, but it can be disadvantageous under some circumstances , because debts that are part of a domestic support obligation are not dischargeable, and federal bankruptcy proceedings do not necessarily use the same definition for "domestic support obligation" that a state divorce court uses, leading to many cases where a spouse assumes the marital debt with the intention of filing for bankruptcy only to discover that the option will not discharge as much of the debt as anticipated.

What to do

If you are facing bankruptcy and divorce together, the American Bar Association recommends that you get legal advice from both a divorce attorney and a bankruptcy attorney and to coordinate those efforts. Working with bankruptcy attorneys who have experience dealing with bankruptcies that are adjacent to a divorce is more likely to get you the specific advice you need, too. It's also important to remember that each individual bankruptcy and divorce is different, so even if some processes are not common, such as a simultaneous divorce and bankruptcy, there may be times when it is still the best choice for you.

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