If you are struggling with joint debt while considering divorce, you may wonder which case should come first. The timing can affect what happens to your debts, property and divorce proceedings.
There is no single filing order that works for every New Jersey couple. Understanding how bankruptcy and divorce interact can help you decide when to file.
How can bankruptcy affect your divorce?
Filing for bankruptcy generally triggers an automatic stay, which stops most collection efforts. A divorce can still move forward, but this protection prevents the family court from distributing property included in the bankruptcy case unless the bankruptcy court allows it.
Bankruptcy also does not eliminate every divorce-related obligation. Child support and alimony are nondischargeable, meaning bankruptcy does not eliminate your responsibility to pay them. Certain debts from a divorce property settlement cannot be discharged in Chapter 7 but can be discharged after you complete a Chapter 13 repayment plan.
When could a joint bankruptcy before divorce help?
While you are still married, you and your spouse can file a joint bankruptcy if you both qualify. If you file jointly and use federal bankruptcy exemptions, you and your spouse can generally double the available exemption amounts for property you both own.
Chapter 7 cases generally move more quickly, while a Chapter 13 repayment plan usually lasts three to five years.
A joint bankruptcy can address dischargeable joint debts in the same case. If only one spouse files, the other may remain responsible for a joint debt even if the filing spouse receives a discharge. Once your divorce is final, you can no longer file a joint bankruptcy together.
When might filing after divorce make sense?
A joint bankruptcy may not fit your circumstances if you and your spouse cannot cooperate or have significantly different financial situations. Completing the divorce process first may also clarify which property belongs to each spouse and which financial obligations remain.
Chapter 7 uses a means test, which considers your income and certain expenses to determine whether you qualify. Changes in household income during a divorce may therefore affect eligibility.
Coordinating both cases can clarify your next steps
Bankruptcy and divorce can affect the same debts and property. Coordinating both cases may help you deal with marital debts that bankruptcy can eliminate before the divorce becomes final or determine whether waiting better fits your circumstances. An attorney familiar with bankruptcy and family law can explain how each filing may affect the other, helping you understand your options before choosing a timeline.
