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Divorce and bankruptcy: things to consider

Marital and financial problems often go hand-in-hand. If you and your spouse are considering filing for divorce, and if one or both of you are thinking about filing for bankruptcy, you have a lot to think about. If you have decided that there are no alternatives to bankruptcy or divorce, there are many strategic considerations, such as:

  • Do you file for bankruptcy first or for divorce first?
  • Do you file bankruptcy jointly, or does only one spouse need to file bankruptcy?

The way these issues are resolved could impact your future for years to come. Let's take these points in order.

What comes first? Bankruptcy or divorce?

Every person's situation is unique. Ideally, a person considering bankruptcy and divorce should talk to a lawyer who has experience in both of these fields. With this said, when both spouses have accumulated significant amounts of debt as a married couple, filing joint bankruptcy before filing for divorce usually makes a lot of sense.

For one, when a married couple files bankruptcy together, they can double their exempt property. Exempt property that will not be subject to liquidation in Chapter 7 bankruptcy. In plain English, this means that they couple will be able to keep more property in Chapter 7 bankruptcy.

Secondly, if a married couple files bankruptcy jointly, they can take care of their marital debt. This can make it easier to reach agreement on any marital property issues in their divorce.

This is not always the case. For instance, a married couple could earn too much income to qualify for Chapter 7 bankruptcy. In these situations, it may be better to wait until after the divorce is finalized to file for bankruptcy.

Filing bankruptcy together or apart?

While some people believe that if one spouse files bankruptcy that the other spouse needs to as well, this is not always the case. For instance, if only one spouse is responsible for the majority of the debt, then the other spouse would not need to file bankruptcy. On the other hand, if only one spouse files bankruptcy but the debts are held jointly, the other spouse would still be responsible for paying these debts.

If both spouses are jointly liable for debts and neither has the ability to pay them, filing bankruptcy jointly is often the best course of action.

A note of caution. There are so many factors that go into filing bankruptcy and divorce. Your best option is working with a lawyer who understands both family law and bankruptcy law. For decades, people across Maryland have put their trust in attorney Jonathan Gladstone.

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