317.745.4494
Call to Schedule an Appointment

Knowing Whether to File for Bankruptcy While Your Divorce is Pending

Unsurprisingly, financial difficulties are one of the leading causes of divorce in this country. Money concerns can drive spouses to take out their frustrations and anxiety on each other, which can lead to emotional rifts over time. Even if finances are not the driving force behind a divorce, the loss of one person’s income could create significant problems if the couple’s debt load is beyond their ability to pay separately. In either situation, one or both parties may consider bankruptcy as an option to relieve some or all of the financial stress.

It may be appealing to start and hopefully complete the bankruptcy process before the divorce is finalized, but before initiating the bankruptcy process, there are legal and procedural considerations that can impact whether bankruptcy is the right choice, which should be factored into the ultimate decision. Additionally, if filing for bankruptcy, it is important to be strategic about when to file and whether the petition should be individual or joint. If you find yourself considering filing for divorce and bankruptcy,r each out to an attorney right away. A discussion of possible legal issues that arise when a bankruptcy petition is filed in conjunction with a pending divorce will follow below.

What Kind of Debt Do You Have?

Married couples have the option to file for bankruptcy individually or jointly. Which choice is best for each person will largely depend on the type of debt that would be eliminated and if the couple has marital property a bankruptcy trustee could seize and sell.

Starting with debt, the first issue that must be considered is whether the debt in question is individual or marital debt. Once a couple separates, any debt accumulated from that point on is typically attributed to the spouse that incurred it. Thus, costs related to obtaining the divorce, which can be significant depending on the complexity of the case, are usually the responsibility of each party individually unless there is an agreement or court order stating otherwise. However, expenditures on joint credit card accounts or any other joint debts would continue to be the mutual responsibility of both parties. If only one spouse files for bankruptcy, joint debts will only be discharged for that spouse, which leaves the other party solely accountable for any outstanding balances. Thus, if the majority of a couple’s debt is jointly owned, it may be best to file for bankruptcy jointly as well.

What Kind of Property Do You Own?

The other main factor that should figure into this decision is the type of property owned. In Chapter 7 bankruptcies, a trustee is only allowed to seize non-exempt property, and the biggest asset that most married couples own is their home. Each state has its own exemption for homesteads, and if the equity in the home is higher than the exemption amount, the trustee could force a sale and use the proceeds to pay creditors. In Indiana, the homestead exemption amount is $19,300 for individual filers and $38, 600 for couples filing jointly. If only one spouse files, creditors may be able to reach this asset if the home’s equity value is greater than the exemption amount.

Bankruptcy can greatly affect property division in divorce and an individual’s credit rating. Before taking action, consult an experienced bankruptcy attorney on if, when, and how bankruptcy should be approached during a pending divorce.

Get Legal Advice

Going through a divorce is hard enough, but adding the stress of potential bankruptcy can greatly increase how overwhelming the process can become. Attorney Christopher L. Arrington helps clients obtain divorce and file for bankruptcy, which puts him in a position of having extensive knowledge on how these two issues impact each other. If you live in the Danville, Avon, Brownsburg, or surrounding areas, contact him to schedule an appointment, and have your case evaluated.



« Back to Arrington Law Help Center