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Sometimes, when it's beneficial to both parties, one or both parties of a divorcing couple will file for bankruptcy. These are obviously life-changing and very stressful situations on their own, let alone together when emotions are being tested at double capacity. So let's talk about which should come first—the divorce of the bankruptcy.
In most cases—but not all—it's best to file for divorce before bankruptcy for two major reasons. First, a divorce separates the assets like cars and homes, which means you don't have to make payments for your ex-spouse's jet ski.
Secondly, if you go into the proceedings with two incomes, you will more likely than not be unable to file for a Chapter 7 bankruptcy because your income will be to high. Chapter 7 bankruptcies are key because they allow the filer to discharge most of your debts. To figure out if you are eligible, either as a couple or by yourself, it's pretty simple. If your current monthly income is less than the median income for a household of your size in your state, then you are eligible. Divorcing beforehand makes that more of a possibility.
This leads us to the Chapter 13 filing, which is a repayment-based bankruptcy. This is the type of bankruptcy you don't want to get into because it could last up to five years, and more importantly if you don't divorce beforehand, your ex-spouse could be attached to that!
Of course, there are times when bankruptcies are recommended to kick things off. If you're in this situation, facing a divorce and bankruptcy at the same time, feel free to give my office a call at (818) 649-7559 to further discuss this or any other related issues.