Which Comes First: Bankruptcy or Divorce?

Chicken or egg?

Which Comes First: Bankruptcy or Divorce?

It’s all about timing. When considering a bankruptcy and a divorce, should you file the bankruptcy before, during, or after the divorce? Filing bankruptcy before a divorce can make both less expensive and maybe even less complicated.

Divorce and the Automatic Stay

If the bankruptcy petition is filed during the divorce, the divorce action is stopped in its tracks by the automatic stay. All property of the debtors becomes property of the bankruptcy estate and cannot be divided up in any property settlement until either the bankruptcy is over or permission is received from the bankruptcy judge. This automatic stay does not apply to child support, spousal support, or custody and parenting time but only to property division. While it may be necessary to file during a divorce, just understand it will slow down the process.

Costs of Bankruptcy and Divorce

Bankruptcy filing fees are the same whether you file jointly or individually. Also, most attorneys charge the same fees for either a single person or a married couple. Once the debt is gone, arguments about apportionment of debts between spouses is unnecessary which should lower your divorce costs.

Chapter 7 vs. Chapter 13

A Chapter 7 takes anywhere from three to four months to complete. It is an efficient, cost effective way to eliminate debt so it is a quick way to dump your debt without unreasonably prolonging your divorce.

If a Chapter 13 is necessary, consider holding off until after the divorce is over if possible as a Chapter 13 payment plan can be up to 60 months long. Most people don’t want to stay in a bad marriage until the plan is over.

Eligibility for Chapter 7

The income of both spouses is used to determine eligibility for a Chapter 7 bankruptcy. Sometimes, a person’s income would be too much to be eligible for a Chapter 7 if filing by themselves but if that would change if using all of the dependents in the home Other times, a couple has to file a Chapter 13 because they earn too much to do a Chapter 7. In that case, it may be necessary to file after a divorce. For example, if the eligibility for a two person household is $55,000 and both spouses make $35,000 each, they are not eligible to file a Chapter 7. However, since a single filer can earn up to $44,000, they filers would be individually eligible after their divorce.

Have more questions? Give us a call at 313-291-0240.

Chris McAvoy is a  Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Taylor,  Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, Westland, Garden City,  Canton and the Downriver, Michigan area.

About Christopher McAvoy

I've been a lawyer since 1997 and I've seen a lot. We should talk. Not only do I have a lot of the answers, I will share them with you so you can make up your own mind. Chris McAvoy is a Taylor, Michigan attorney who helps people with bankruptcy, family law, and estate planning. To find out more or set up an appointment, click here for contact info. Our attorneys help people in Taylor, Allen Park, Southgate, Lincoln Park, Riverview, Trenton, Flat Rock, Wyandotte, Brownstown, Belleville, Dearborn, Dearborn Heights, and the Downriver, Michigan area.