Filing for Divorce and Filing for Bankruptcy in Michigan. Should I file a bankruptcy prior to filing for divorce or should I wait?
Financial issues and related stress is widely considered one of the top reasons for divorces in the United States. It is therefore not surprising that filing for divorce and filing for bankruptcy might be considered around the same time. What timing is best for couples considering their options for both?
The answer: If you and your spouse have debt and are considering filing for bankruptcy, it is more beneficial to file jointly as a married couple than to try to file individually after the divorce has been settled.
Here are the top 3 reasons why.
#1 With debts resolved, the divorce is less complicated and therefore probably less contentious.
One of the major sticking points of any divorce is finances. By filing a bankruptcy prior to a divorce filing, you can focus on dividing assets and doing what is going to be beneficial for both parties moving forward instead of paying thousands of dollars in attorneys fees arguing over who is going to pay what debts. Divorced couples often find out that debt that was once manageable, based on a 2-person household sharing living expenses, quickly becomes unmanageable when you can no longer share living expenses. Being proactive about this reality will save you unnecessary stress and allow you to be proactive about improving your financial situation.
#2 If you have a home, you can protect more of the equity as a married couple filing for bankruptcy than you can individually.
If a martial home is involved in a bankruptcy, you can claim the “Tenancies by entirety” exemption under state and federal laws. This allows you to protect more of the equity in the home. Both a husband and wife have the ability to each exempt equity in the primary residence- versus a single person trying to protect the equity after the divorce. If the house is transferred in the course of the divorce to one of the parties, then only one person can claim the exemption protection for the equity in a home if a bankruptcy is filed after the divorce(versus both parties using all of the available exemptions/bankruptcy protections).
#3 You will save thousands of dollars in attorney fees!
By filing a bankruptcy prior to the divorce, you will save money in attorney fees. In terms of the bankruptcy, you will save $310 – $335 in court filing fee costs by filing just one case instead of possibly having to file 2 bankruptcies after the divorce. At our firm, we don’t charge more for one person vs. two people filing. So by filing together, you are only paying for one set of attorneys fees to file for bankruptcy vs two separate bankruptcies. Also, if the debt is eliminated in a bankruptcy, you will save money in attorneys fees during the divorce by eliminating debt settlements (who will be responsible to pay what debts).
One other note, some couples are worried that they won’t qualify together because of their joint income. We don’t necessary have to lump in both incomes together under the Chapter 7 means test. We can elect to file as married but living in separate households.
In summary, it is most beneficial to resolve debt issues prior to pursuing a divorce. We offer free consultations to help determine the best course of action. We will review whether you qualify to file:
Chapter 7 bankruptcy to simply eliminate unsecured debt obligations such as credit cards, medical bills, personal loans, loan deficiencies, etc.
Chapter 13 bankruptcy to consolidate your debts with court protection. This program has powerful tools to stop a foreclosure sale, prevent vehicle repossession, avoid tax liens, etc. While this is a repayment process, most clients are able to eliminate a portion (if not a majority) of their remaining unsecured debts at the completion of the program.
Non-bankruptcy debt settlement to offer a reduced lump sum payment for a legal release of the debt(s).
Call us today at 866-261-8282 to speak to a licensed attorney about your best options to resolve your debts or schedule a time online.