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3 Questions: Bankruptcy First or Divorce First?

The uncomfortable marriage between family law and bankruptcy.

This is an impossible article and the Florida Bar should agree. So many attorneys have tried to translate family law to bankruptcy law and vice versa. Bankruptcy attorneys and family law attorneys will disagree about each and every single point I make. Here is my simple attempt. As some of you know, I am a family law attorney (among other areas) and my wife is a bankruptcy attorney, so we live this lack of communication daily. Let me try a new format and do a question and answer:

1.     When is it more beneficial to file for a divorce before filing for bankruptcy?

Bankruptcy Attorney:  “Bankruptcy can, but doesn’t always, delay your divorce proceedings. If you and your spouse have agreed to everything, you may be able to get your divorce finalized faster than if you file for bankruptcy first. Also, if you file pre-divorce, your combined income may be too high to qualify for a ‘Chapter 7’ bankruptcy proceeding. A Chapter 7 discharges most, if not all, of your debts.

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“The other concern is about the debts that you want to keep. These types of debts are typically a car loan or a mortgage. If you file to discharge all your debts other than your car and home, and later decide you cannot handle these debts, you will not be able to re-file for a number of years. If you and your spouse can only qualify for a ‘Chapter 13’ (a debt repayment plan), you would be stuck in a repayment plan with your ex-spouse for five years.”

Family Law Attorney:  “What effect then does a family law divorce Order (Final Judgment of Dissolution of Marriage) have on a divorced couple’s bankruptcy proceedings?” 

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Bankruptcy Lawyer:  “It would establish what assets belong to the bankruptcy debtor and what assets belong to the ex-spouse. It establishes support obligations such as alimony and child support that have high priority in various ways in a bankruptcy case. In a Chapter 13, the bankruptcy debtor (the ex-spouse) cannot get a discharge unless the debtor is current on support payments. Most importantly, the Bankruptcy court will not discharge alimony and child support obligations.”

Family Law Attorney:  “Who was the Tampa Bay Buc’s first pick this year in the draft? 

Bankruptcy Attorney: Knock it off! Turn off ESPN. 

 

2.     When is it more beneficial to file for bankruptcy before filing for divorce?

Bankruptcy Attorney: “If you make a majority of the money, you may only qualify for a Chapter 13 if your spouse and children are living in the same household with you. If you and your spouse are willing to file a joint bankruptcy prior to divorce, and if your divorce will consist of arguing over who owes what debt, filing a joint bankruptcy can eliminate most, if not all, of your debts, whether joint or not. So there would not be any debt to argue about.“

Family Law Attorney: “So if the parties file bankruptcy before the divorce on their joint debts, they can have them either discharged or restructured so the creditor will not come after the other spouse after the divorce and the bankruptcy?”

Bankruptcy Attorney:  “If they filed bankruptcy jointly, then the debts would be discharged as to both of them in a Chapter 7.”

Family Law Attorney:  “Then these debts would not be subject to equitable distribution since they are discharged.”

 

3.     What if you file for bankruptcy and divorce at the same time?

Bankruptcy Attorney: “There is a benefit to filing for bankruptcy first, and a benefit to filing for divorce first, but not together.”

Family Law Attorney: “I agree. Stupid idea. Some parts of your divorce can proceed, and others cannot. It is a lot less expensive and a lot less time to do an entire divorce before or after the bankruptcy. You better make sure your family law attorney is also a bankruptcy attorney. That rarely happens. However, regardless of whether you file for divorce or bankruptcy first, make sure the two attorneys get along. Get a law firm that has lawyers that practice in both areas.”

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