If you and your spouse are considering filing for bankruptcy and divorce in Indiana, the parallel processes can be tricky as much as they can be detrimental to your unique situation. Several factors must be taken into consideration. Timing is important and can affect the complexity, costs, and outcomes of both sets of proceedings.
At James K. Tamke, PC , our bankruptcy attorney in South Bend can explain to you the advantages and disadvantages of filing for bankruptcy before, during, or after a divorce. Our attorney will also explain how those pros and cons apply in your specific case. Below is an overview but contact us at (574) 289-8788 to schedule a free consultation and learn more about bankruptcy and divorce and the impact each has on the other.
Bankruptcy Before a Divorce in Indiana
Whether to file for bankruptcy before your divorce proceedings depends on a range of factors, including where you live, your shared and individual debts and assets, and the type of bankruptcy you intend to file. The best course for you depends on your personal circumstances, so it's important to seek legal advice before proceeding. Below are four specific factors you should consider when filing for bankruptcy before a divorce.
Factor 1: Chapter 7 versus Chapter 13
If filing bankruptcy before a divorce, Chapter 7 bankruptcy is usually your best bet.
Filing for bankruptcy before a divorce is better suited to Chapter 7 bankruptcies, especially if the divorce is amicable. Chapter 7 bankruptcies liquidate a debtor's assets and eliminate eligible unsecured debts, like credit card debt, personal loans, and overdue medical and utility bills. Also, Chapter 7 bankruptcies can be finalized quickly, taking three to six months.
Keep in mind, however, that eligibility for Chapter 7 bankruptcy is ‘means tested'–your combined income must be under the threshold amount. If the combined income of your marriage exceeds the threshold, then Chapter 13 may be your only option if you are determined to file for bankruptcy before your divorce.
Chapter 13 bankruptcies allow individuals to enter into a repayment plan with creditors. As such, it is usually not a good idea to file for Chapter 13 bankruptcy before divorce. Repayment plans last between three to five years, which can significantly delay your divorce proceedings.
Factor 2: Fees and Other Costs
Money matters, and this is often reflected in the reason why some couples may want to file for bankruptcy before divorce: to reduce the costs of bankruptcy.
Filing a joint bankruptcy petition before a divorce reduces the costs associated with bankruptcy proceedings. You and your spouse pay one filing fee and can share a bankruptcy attorney. The combined fees and costs of Chapter 7 bankruptcy can be between $1,000 to $2,500. For Chapter 13 bankruptcy, the combined fees and costs are significantly more and can meet or exceed $4,000.
In the scheme of things, you will want to evaluate how much the savings matter compared to the other factors involved in filing for bankruptcy before a divorce.
Factor 3: Assets
In a divorce, your assets are divided, which can be a long, bitter process unless you have already had the matter simplified through bankruptcy.
Filing a Chapter 7 bankruptcy petition may simplify any subsequent divorce proceedings. Bankruptcy wipes out your unsecured debts. Because you no longer have this debt, it is one less task to consider when dividing property. When divorcing, part of the property settlement is determining debt and who owes or will pay that debt.
However, if you want to file for Chapter 13 bankruptcy, it could complicate matters. Chapter 13 is often used for people who want to save their homes or vehicles from foreclosure or repossession. However, you won't know until the completion of the Chapter 13 bankruptcy, which is between three to five years, if those assets will remain yours or not.
Among other reasons, if filing for bankruptcy before divorce, Chapter 7 bankruptcy could benefit you in terms of asset division while Chapter 13 may not.
Factor 4: Creditors
As a married couple, creditors can often sue both spouses for debt accrued during the marriage and, depending on what happens in divorce court, that can remain true after a divorce.
A divorce court judge can order that both spouses are responsible for any given debt they have accrued during their marriage. Maybe there is a credit card in one spouse's name only, but the other spouse benefited from the charges on that credit card. The judge can hold both parties responsible for paying off that debt. That means, if one spouse fails to pay and the creditor files a lawsuit, you can be sued for the debt, just like your spouse.
Filing for Chapter 7 bankruptcy before a divorce can result in the discharge of joint debts. Creditors will no longer be able to harass you for payment, meaning they can't sue you, garnish your wages, or freeze your bank account. Of course, bankruptcy before a divorce will only work if both spouses cooperate.
Bankruptcy During a Divorce in Indiana
As a general rule, it's best to keep divorce and bankruptcy proceedings separate, rather than filing for them at the same time. The crossover of assets between the two cases can drag out both proceedings, costing you more time, money, and stress.
A pending Chapter 7 or 13 bankruptcy can restrict a divorce court's ability to divide your marital assets. And issues that typically arise during divorce proceedings, such as child support or alimony, could delay the finalization of a bankruptcy case.
There is also this, the two proceedings, even if filed at the same time, will likely not proceed along the same timeline. In the unlikely event the cases are pending simultaneously, your bankruptcy case could be suspended until the divorce court apportions debt and assets to each party.
So, trying to do both at the same time may not work and usually does not provide any benefits that would outweigh the many disadvantages.
Bankruptcy After a Divorce in Indiana
Divorce is supposed to give you a fresh start, but the financial aspect of it may pose problems. Many divorced persons find themselves in bad financial situations after a divorce––after all, for most divorcées, household income is essentially halved. Bankruptcy may be the true game changer, offering a fresh financial start where divorce could not.
There are, of course, factors to consider when contemplating whether to file for bankruptcy before or after divorce and below are a few of those.
Factor 1: Costs
Once you are divorced, you have to pay the bankruptcy-related fees on your own.
Filing for bankruptcy after a divorce can be more costly, as you will have to pay separate filing and legal fees for your bankruptcy case.
Factor 2: Conflict
Divorces can be bitter, and when that is the case, the other spouse may not be willing to cooperate with you when you want to file for bankruptcy.
Filing for bankruptcy after a divorce may be a good approach if the divorce proceedings are acrimonious. Trying to persuade a bitter spouse to cooperate with a bankruptcy case can be difficult at best. If you are already divorced, then you will only have to deal with your own finances, assets, and debts, and can make decisions based on what is most beneficial to you.
Plus, if you wanted to file for Chapter 13 bankruptcy, which takes between three to five years to complete, your chances of successfully completing it increase if you do it on your own. You also do not have to worry about bankruptcy delaying your divorce.
Chapter 7 is also a viable option if you file after divorce. This is true, especially in cases where your household income – while married – exceeded the income limit set by your state. Now that you have separate income, you may qualify. If you qualify, then all the debt you acquired from the divorce (and even after the divorce) can be discharged (so long as the debt is dischargeable).
Factor 3: Creditors
Filing for bankruptcy after divorce may not protect you from creditors of joint debts.
Recall that the judge of a divorce proceeding will determine or approve the division of assets and debts. Often, divorcing spouses are ordered to jointly repay a certain creditor. When that happens, and absent any instructions or conditions, you are responsible for that debt in full regardless of the other party.
If you are the party filing for bankruptcy, you can discharge the debt (if it qualifies), but that discharge does not relieve the other party from their obligation to pay the debt.
If you are not the party filing for bankruptcy, you must continue paying the debt. The creditor can come after you for the other party's share of the debt, too.
Contact a Bankruptcy Lawyer in South Bend Today
Divorce is stressful enough. Adding bankruptcy on top of it can make it more stressful. Timing the two procedures is critical to the success of both of them, but especially for bankruptcy. You want to make sure you have considered all your options alongside your unique circumstances.
At James K. Tamke, PC , our bankruptcy attorney in South Bend will guide you through the process and advise you accordingly. We want to make sure you are successful when you file for bankruptcy. Contact us by filling out the online form or calling us at (574) 289-8788 to schedule a free consultation.