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Divorce or bankruptcy: Which do you file first?

On Behalf of | Sep 19, 2022 | Divorce |

It’s devastating to realize that your marriage is over – but it can be equally devastating to realize that your finances have somehow gotten into a real mess over the last few years. (Indeed, your financial issues may be part of the reason for the divorce, especially if your spouse is largely responsible for the trouble.)

You need to end your marriage, but it’s also clear that you’re going to have to file for bankruptcy. How do you begin to handle the situation?

Pick one or the other to handle first

You really can’t go through a divorce and bankruptcy at the same time. A bankruptcy trustee is unlikely to allow a bankruptcy to continue once your divorce petition is filed, since the resulting divorce will affect your income and your remaining assets.

That means you need to decide what makes the most sense for your situation. Here’s what to consider:

Do you and your spouse have drastically different incomes?

If you hope to file for Chapter 7, which cancels the majority of your debts, your income has to pass a “means” test to qualify. In Illinois that means your yearly income (for a two-person household) must be below $81,190. Otherwise, you have to file for Chapter 13, which is a much more involved and lengthy process.

If your income is significantly lower than your spouse’s income, it may make the most sense to divorce first and file the bankruptcy after.

Do you and your spouse want a simplified divorce process?

One of the hardest things to get through in a divorce is the division of the marital assets and debts. If you want to sail through the divorce process, it can be a lot easier to let the bankruptcy proceed first and then handle the divorce when all the dust settles on your financial situation. (Plus, a joint bankruptcy filing can sometimes allow you and your spouse to keep more of your assets.)

Whatever the situation, it’s wise to discuss your legal options carefully. That way, you know the potential ramifications of each choice.