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BANKRUPTCY OR DIVORCE FIRST?
Bankruptcy and divorce are not a surprising combination. Financial constraints often take a toll on a marriage and I have seen this scenario quite often. I was given a scenario from a friend today that was not new to me. The scenario was:
I have a friend who is separated from hubby, he is planning to file for bankruptcy prior to filing for a divorce.
1. What will this do to her credit?
2. None of the bills have her name on them.
3. If she files for divorce- then he files BK – will this mess up her credit?
4. Will it delay the BK at all ? Or vice versa ?
Bankruptcy When Married.
It does not sound like wife needs to file bankruptcy, but, if they are still married, the bankruptcy court will require that husband provide wife’s income information in the bankruptcy. If she does not file a joint petition for bankruptcy there should be no affect to her credit. However, with that said, if any of their accounts are joint, such as the house or a credit card, and husband files for bankruptcy it would have a negative effect to her credit even if she does not file. Plus, she will still be obligated on the debt even if he files and receives a discharge. I know the scenario says wife is not on any of the bills, but she would want to confirm that to be the case as it is common that husbands and wives share some debt such as a house or car debt.
Divorce When Bankrupt.
On the divorce side of things there are some variables that could create issues. The divorce court has the authority to allocate some of husband’s debts to wife and even if he were to file bankruptcy later she would still be obligated to pay on those debts. Now, with that said, if husband files and obtains a discharge and she does not pay it would be up to him to file for contempt for nonpayment which is unlikely since he does not benefit. She does gain some “advantage” in the divorce in that that there are no debts to allocate and assets are allocated. The other perspective is wife might lose some leverage in the divorce if there is going to be a battle over anything. Still, depending on income levels of each spouse, it may be necessary to get the divorce first for husband to qualify for a Chapter 7 versus have to file a Chapter 13 which requires 3-5 years of payments toward the debts. It is a scenario that reminds me of the old adage “the devils in the details” so it is difficult to say which should be filed first.
Finally, if wife files for divorce and husband subsequently files for bankruptcy then the bankruptcy does “stay” the divorce which is to say that it cannot move forward without his consent. However, the scenario does not change much if he files bankruptcy and she then files for divorce as the bankruptcy determination will need to be made to know what debts/assets exist to allocate in the divorce proceeding.
Unfortunately, the details of their scenario bear on the overall questions you have asked. Generally, I would recommend a divorce filing prior to a bankruptcy filing but that the parties address the bankruptcy filing in the divorce filing where only one spouse needs bankruptcy relief. If there are joint debts or if both spouses need bankruptcy relief then I recommend the bankruptcy first.
If you need more information about divorce and bankruptcy law do not hesitate to contact a skilled Indiana Bankruptcy lawyer at our firm to schedule a consultation.