Bankruptcy and Divorce

Often, divorce proceedings and assets lost in a divorce can make it necessary to file for bankruptcy in Arizona. In fact, the Phoenix bankruptcy lawyers at Want A Fresh Start know divorce is one of the more common reasons people choose to file. If you are still married, there are a number of factors to consider when determining whether to file for bankruptcy or divorce first – in addition to ways to make the process as easy on yourself as possible. You may wish to consider the following factors when facing bankruptcy alongside divorce.

Property Division

The division of jointly held property can be made significantly easier by utilizing a bankruptcy to first eliminate the debts. Instead of determining who will inherit a home or property with a complicated financial situation, preemptive bankruptcy can act as an equalizing force, allowing the property to be later divided in a more straightforward way.

That said, there are circumstances under which filing for divorce first may be the better option. If you are unable to double your home exemptions and the property owned together will exceed the range of exempted funds, it may be better to file after the property has been divided in the divorce. This way, the property’s overall value will be decreased, and it will more likely fall into the bracket of exemption.

Costs of Divorce and Bankruptcy

The cost of filing for bankruptcy in Arizona remains the same whether you file as an individual or as a couple. Therefore, a joint bankruptcy filed with your spouse preceding a divorce may be a good way to save on filing fees. It may also assist with attorney costs, as the Phoenix bankruptcy lawyer will only need to handle a single case for both you and your spouse’s bankruptcy claims.

Chapter 7 or Chapter 13?

Before hiring a Phoenix bankruptcy attorney, perhaps the first question you should ask yourself when choosing whether to file for bankruptcy or divorce first is whether you intend to file under Chapter 7 or Chapter 13. Chapter 7 is a relatively short procedure, in which assets are liquidated and allocated to settle debts. Generally, this entire process takes no more than six months, so postponing a divorce for this amount of time will likely not yield any negative consequences.

Chapter 13, on the other hand, takes quite a bit longer. The time bracket for successful completion of a Chapter 13 claim is between three and five years, as all debts will be paid off slowly without asset liquidation. Therefore, if you plan to file for Chapter 13, it may be a good idea to settle your divorce first so you are not left in limbo for years following the initial petition for bankruptcy.

Qualifying for Chapter 7

If you do intend to apply for Chapter 7, a joint filing may act as a hindrance, depending on your income level. A means test is conducted to determine whether or not your income is low enough to be eligible for a Chapter 7 proceeding. Incomes that fall below the median for their region are the only ones that qualify, and the income considered is that of the household.

Therefore, if you and your spouse file a joint bankruptcy claim in Arizona and your combined incomes put you at or above the regional median, you will be ineligible to proceed under Chapter 7. Even in cases where each individual’s income is below the median, the combined higher income will disqualify you.

When divorce and bankruptcy occur near to or because of each other, many considerations are added on. There are multiple factors unique to each case that will determine the best way to proceed and our Phoenix bankruptcy lawyers will be able to help you better understand those that affect your particular case. The most efficient and effective way to make these processes work for your benefit is by consulting with a professional. Contact us for a free initial case evaluation.