You and your spouse are unhappy in your marriage and planning to split up. A big part of the reason is financial. You're facing bankruptcy, and the stress of the situation is hard on your marriage.
One of the key things you must decide is if you want to file for divorce or bankruptcy first. Below are three critical points to consider when making this decision.
1. Your Income
Your income level helps determine if you're eligible for Chapter 7 bankruptcy. If your income is too high, you must use Chapter 13 instead. Chapter 7 allows you to liquidate assets and erase your debt. Chapter 13 creates a repayment plan that lasts typically for three to five years.
Therefore, filing jointly with your spouse may mean your income is so high that you can't use Chapter 7. If you'd like to, filing for bankruptcy after the divorce could be beneficial and may be the only way to use this method.
2. The Timeframe
As noted above, Chapter 13 takes longer to resolve than Chapter 7 and locks you into a repayment plan. If you're going to go this route, it might be better to file your bankruptcy petition after the divorce, if that's possible. If you use Chapter 13 before splitting up, you and your soon-to-be ex are locked into a financial arrangement together - something that's clearly less than ideal. The divorce case will then need to address these issues, perhaps by dividing the repayments. Filing after you divorce eliminates this step from the process.
Of course, with Chapter 7, the timeframe is shorter. Your bankruptcy may only take a few months. Unless you're in a highly contentious marriage and want to get divorced as soon as possible, it's probably easier to file for Chapter 7, get through the bankruptcy case, and then file your divorce papers.
3. Potential Cooperation
A highly contentions marriage is noted above, and there's another reason to consider the state of your relationship. If you and your spouse file for bankruptcy together, you must be able to work together. You appear in court together and share financial information. You must both be honest, meet deadlines and turn in all paperwork.
If you're on good terms, this isn't hard. If you're constantly fighting - a possibility, considering the stress on your marriage from the financial insecurity - working together may prove nearly impossible. In that situation, you may just want to end the marriage first and then move forward with the bankruptcy case on your own.
Taking Action
Of course, every situation is different. You need to decide which approach is best for you and your spouse. This is a tough time, both emotionally and financially, but knowing what action you can take can lead to better decision-making.
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