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The intersection of divorce and bankruptcy

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A common cause for divorce is financial troubles, often due to souses having different perspectives and habits with respect to finances. The tension and arguments might lead to the need to put their marriages behind them. Bankruptcy could also be necessary.

You might think that you can handle these matters at the same time. This isn't the case. You and your spouse must decide how to handle the divorce and bankruptcy so that you can move forward with each process effectively.

The automatic stay impacts divorce

When you file for bankruptcy, the court issues an automatic stay. This prevents creditors from trying to collect on debts. While that is a welcome relief for the debtor, it can make divorce impossible. The automatic stay freezes the assets and debts. This means that they can't be moved around during the property division process, which makes it impossible for the divorce court to accurately determine what needs to be split up during this process.

Filing for bankruptcy first

Filing for bankruptcy first enables you to take care of the joint debts so that you don't have to worry about them during the divorce. The upside is that you may qualify for increased exemptions during the bankruptcy. The downside is that you might have to remain married for years after the filing if you are going through a Chapter 13 bankruptcy.

Filing for divorce first

There are some cases in which filing for divorce before bankruptcy might make more sense. If you need a quick split, such as an uncontested divorce, this might be the way to go. Another time when it might be the better solution is if you need to file a Chapter 7 bankruptcy but your joint income is more than the allowable limit.

When bankruptcy and divorce overlap

If you do end up having both cases at the same time, you will need to have a different attorney than your ex. This is because you are considered opposite parties in this circumstance. If you are filing for bankruptcy as a married couple, you can have the same attorney. If you are filing for divorce at the same time and it is uncontested, you might have the same attorney. When these two types of cases overlap, there is a conflict of interest. Make sure that you take stock of your unique circumstances so that you can formulate a solid plan.

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