When is the Best Time to File for Bankruptcy – Before, During or After the Divorce?

 

The answer depends on the circumstances of the parties and their level of cooperation with each other.

Pre-Divorce Bankruptcy:

A bankruptcy before the divorce will save costs and attorneys’ fees charged to the husband and wife for the bankruptcy. Typically the cost of a joint case is not much more than an individual case and the filing fees are the same. Thus, jointly-filing spouses can save roughly 50% by filing together while still married. Furthermore, the bankruptcy case can clear up issues involving debts and assets, which may facilitate an easier divorce proceeding. If the parties have significant debt problems, then it is wise to consider filing before the divorce.

 

Mid-Divorce Bankruptcy:

Filing during the divorce case, while fairly common, can cause considerable problems. Usually, this tactic is taken by one spouse to spite the other and delay divorce proceedings. Most proceedings are not stayed by a bankruptcy filing. However, property divisions are an exception. If there are assets to be divided, the bankruptcy trustee will now have to be involved in the matter. A division of assets will need to be fair, otherwise, the trustee can bring objections in the bankruptcy court. Bankruptcy trustee intervention in the divorce case usually means higher fees and costs to the divorcing parties and higher scrutiny to property divisions. On the other hand, if there are no assets for the bankruptcy estate to administer, a mid-divorce filing has little effect.

 

Post-Divorce Bankruptcy:

After the divorce, a bankruptcy filing can bring greater scrutiny of the marital settlement agreement and the division of assets. If the division is not reasonable, then a bankruptcy trustee can bring an avoidance action. Debts incurred by one spouse and owing to the other during the bankruptcy proceedings are likely

not dischargeable. Additionally, costs will be higher if both formerly married spouses file. This is also where debt allocation and hold harmless/indemnification clauses will be a critical factor, depending on whether counsel represents the filing or non-filing spouse.

 

 

Andrew G. Storie is a family law and divorce attorney who serves Orlando and all of Central Florida. For more information, or if you have questions please visit www.storielaw.com or call us at (407) 838-0887.