BANKRUPTCY AND DIVORCE: WHAT YOU NEED TO KNOW

You’re considering or already in the process of divorce, but at the same time debts are overwhelming you, and you probably need to file for bankruptcy. Should you file for bankruptcy before, during, or after the divorce proceedings?

There are several considerations to make before deciding on when to file, including whether your bankruptcy will be individual or jointly with your spouse. It is crucial to realize the effect bankruptcy may have on your assets. If the court has to sell off some of your assets to satisfy creditors, that could affect the division of property during divorce.

If you find yourself in this situation – facing divorce and bankruptcy at the same time – contact us at Oliva Law if you’re in McAllen, Texas, or in Brownsville, Harlingen, Corpus Christi, or anywhere throughout the Rio Grande Valley, Texas. We can help assess your situation and seek to advise you of your options to settle debt obligations and move on in life.

Considerations in a Bankruptcy Filing

The first consideration is which type of bankruptcy filing you choose to make. A Chapter 7 filing will liquidate any nonexempt assets and use the proceeds to pay creditors, at least partially. A Chapter 13 filing is known as the wage earner’s plan. Chapter 13 is for people with a monthly income but with an outstanding debt load. The person or couple’s disposable income is calculated, and then a three- to five-year repayment plan is established.

Most people choose Chapter 7 if the income means test meets the requirements since it is over in a few months and almost all debts are wiped out, except for student loans, most taxes, and alimony and child support payments. After discharge, there are no years-long payment obligations.

Texas has probably the nation’s most generous list of exemptions – items of value – that you can retain in a Chapter 7 filing, including equity in a primary home of up to any value as well as a car for each family member of any value. In addition, a single person can exempt $50,000 in personal possessions, a couple $100,000.

Individually or Jointly?

If both spouses have joint debts to get rid of, a joint bankruptcy filing is usually the solution. The attorney and court fees are the same whether you file individually or jointly, so a joint filing saves money. If one spouse has outstanding individual debts and the other is debt-free, then an individual filing may be the route to go.

Keep in mind that the divorce court can still order you to help pay the debts of your spouse if you file individually. So, unless you file jointly or both agree to file individually, you could still be stuck with debts even after bankruptcy.

When to File

If you file Chapter 7 before divorce, it will simplify the division of property during the proceedings. Some non-exempt assets will have been sold off and won’t need to be taken into the equation. In addition, there will be little or no debt to be divided between the spouses.

If you file simultaneously with a divorce, your assets will be subject to the bankruptcy trustee’s control, and your debts will be put on hold when the bankruptcy “automatic stay” kicks in. This will delay the division of property (and of debt) process during divorce.

If you choose to file afterward, you will have to file individually. One benefit may be that your individual income post-divorce may qualify you for Chapter 7, whereas you might not have qualified previously. If you do intend to file after divorce, be mindful that you could still be on the hook for your spouse’s debts if your spouse doesn’t also file, depending on the terms of the divorce settlement.

How Legal Counsel Can Help

Everyone’s situation is unique when it comes to bankruptcy, so you need to seek legal advice before deciding on which course to take, Chapter 7 or Chapter 13, and when to file. If you’re facing divorce and have already hired a family law attorney, it’s unlikely that that person will be able to provide you with answers to your bankruptcy questions.

Bankruptcy is what we do, so if you’re facing overwhelming debt and also facing divorce, contact Oliva Law immediately. We proudly serve clients in McAllen, Brownsville, Harlingen, Corpus Christi, and throughout the Rio Grande Valley, Texas.