Can I Keep My Wedding Ring in Bankruptcy?
Key Takeaways
- A joint petition costs the same as filing alone.
- A divorce decree does not stop a creditor from pursuing you.
- Filing first pauses the property division, but nothing else.
- Chapter 7 usually goes first; Chapter 13 usually goes after.
Notably, one of the leading causes of divorce among couples is financial issues or disagreements. In extreme scenarios, such financial issues or disagreements among couples can be about whether or not to file for bankruptcy. That said, couples who ultimately plan on filing for divorce may be unsure as to whether to file bankruptcy beforehand or afterward. Continue reading to learn if you and your spouse should file for bankruptcy or divorce first and how an experienced Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq., can assist you in making this determination.
Should My Spouse and I File For Bankruptcy Before Filing for Divorce?
If you and your spouse file for bankruptcy before filing for divorce, you will have to submit a joint petition. Specifically, this will contain the financial information of you and your spouse in a single set of documents.
Some would say that submitting a joint petition is more comprehensive than filing separately. Examples that point to this are as follows:
- It is less expensive to file for bankruptcy together, because the court charges the same filing fee for a joint petition as it does for one person.
- It is less time-consuming to file for bankruptcy together as opposed to separately.
- Filing for bankruptcy together will discharge the qualifying debts of both you and your spouse, which will simplify the divorce terms settled in court (i.e., asset division).
- Filing for bankruptcy together will discharge the qualifying debts of both you and your spouse, which will restrict creditors from going after either of you to collect payment.
It is important to note that if you and your spouse are planning to file for a Chapter 7 bankruptcy, it is best that you handle this first. The reasoning is that Chapter 7 bankruptcy cases typically last only a few months, so it will not push off your divorce proceedings for too long. Plus, doing so beforehand can rid you and your spouse of your obligation to repay unsecured debts.
A Divorce Decree Does Not Bind Your Creditors
It’s imperative to understand that a matrimonial judge may assign a joint credit card to your spouse during the divorce, and that assignment binds your spouse. However, it does not bind your bank. As such, if your name is on the account and your former spouse stops making payments, the bank can legally pursue you. Your only option would be to return to family court to seek enforcement for a non-paying spouse.
Clearing a joint debt through bankruptcy before a divorce removes the issue, rather than simply allocating it.
Filing First Will Pause Part of Your Divorce
Something that catches many spouses by surprise is that the automatic stay does not stop a divorce. In fact, most of the case will carry on despite the filing, such as:
- The dissolution of the marriage itself
- Custody and visitation determinations
- Establishing or modifying existing child support or alimony orders
However, it is important to understand that property division will not continue, as the assets subject to division may also be part of the bankruptcy estate.
As such, filing Chapter 7 first will hold up the asset division process for a few months while the case runs, which is typically tolerable. The same filing during a contested Chapter 13 would stall it for years.
Should My Spouse and I File for Bankruptcy After Filing for Divorce?
While filing for a Chapter 7 bankruptcy before a divorce is recommended, this is not the case for a Chapter 13 bankruptcy. This is because a Chapter 13 bankruptcy involves you and your spouse entering into a repayment agreement that can last anywhere between three to five years, versus just a few months with a Chapter 7 bankruptcy. Tying an unfinished divorce to a five-year repayment plan rarely serves either person, even though Chapter 13 itself lets you keep your property.
One Case For Divorcing First
If your combined income is high enough that a joint filing would fail the means test, separating first may change the outcome. When you are no longer married, only your own income would count, and you may be eligible for Chapter 7. This is worth considering, as it can change the entire sequence of your case.
Contact Our Experienced New York Bankruptcy Firm
If you are considering filing for bankruptcy but aren’t sure how a potential divorce would impact your case, it’s in your best interest to discuss the specifics with an experienced attorney at the Law Offices of Allen A. Kolber, Esq. Our team understands how complicated these matters can be, which is why we will do everything in our power to help you fight for the best possible outcome. Contact us today to learn more.
