Is it a good idea to file for bankruptcy during a divorce?

On Behalf of | Jun 28, 2022 | Divorce |

Many times, an Alabama couple’s financial problems can lead to the breakdown of their marriage.

This is one reason why, when Mobile couples are in the middle of a divorce, they may discover they are also in a bad financial situation with a lot of debt.

Just because a couple is divorcing does not stop them from filing for bankruptcy. As long as the couple remains legally married, they are even able to file a joint petition for bankruptcy.

There are some advantages to doing so and then finalizing a divorce.

For example, the couple would be able to take advantage of combined exemptions. Exemptions allow a couple to protect much of their property from being turned over to their creditors.

By filing as a couple, they may on a practical level double the amount of property they can protect.

They also get the benefit of discharging much if not all of their marital debt, meaning that debt will be a very minor issue in their divorce proceeding.

On a related point, since the couple only files one petition for bankruptcy, they only have to pay the costs of the bankruptcy once.

Mobile couples should understand their option to file bankruptcy during divorce 

It is not always a good idea for Mobile couples to file a joint bankruptcy before they divorce.

If a couple does not get along well or does not trust each other in financial matters, it might be better not to file for bankruptcy together.

The bankruptcy process will require a measure of cooperation and complete openness with each other and with the bankruptcy authorities.

Likewise, if the couple makes a high enough income, filing jointly may mean they cannot qualify for Chapter 7 bankruptcy and will have to file for Chapter 13 instead.

Chapter 13 would require the couple to work together for years on creating and then following a court-approved payment plan. By filing separately after the divorce, each person may be able to qualify for Chapter 7 since they cannot count on each other’s income.

Because each person’s circumstances are different, someone facing both divorce and financial problems should be sure to understand their legal options.