– Dan Freund, Eau Claire bankruptcy attorney
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This page contains general information. Contact a WBG attorney for specific advice.
Divorce and debt often go hand in hand. In some cases financial distress causes a couple to split. In other cases the separation itself – the cost of maintaining two households – is the straw that breaks the camel’s back. In these circumstances bankruptcy may provide the best solution for one or both spouses. But, when should you file?
Spouses file together before final divorce.
Some attorneys routinely recommend that divorcing spouses file a “joint” bankruptcy. This eliminates debts, which makes the divorce go easier. And it can save money in attorney fees and filing costs. But it only makes sense when –
1. the couple qualifies for a bankruptcy as a couple,
2. the couple can exempt all their assets ,
3. both spouses expect no future financial hardship, and
4. both spouses need bankruptcy relief.
A couple that meets these conditions should file their bankruptcy shortly before the final divorce hearing. Otherwise new debts might pop up to complicate matters. Unfortunately, filing a bankruptcy during a divorce creates a new wrinkle: The automatic stay may stop the final divorce hearing. But the couple’s bankruptcy attorney can help them get “relief” from the stay to complete the divorce.
One spouse files before divorce.
A single spouse bankruptcy may make sense when one spouse incurred most of the couple’s debts. This is because one spouse, filing alone, may be able to protect the non-filing spouse from creditors trying to collect marital debts. In this scenario the non-filing spouse may never need to file a bankruptcy.
But great danger lies in a single spouse filing. Wisconsin is a community property state. So all of the couple’s joint assets go into the single spouse’s bankruptcy – even assets held in the name of the non-filing spouse. The question then becomes whether the filing spouse’s exemptions can protect that property. The answer involves very complex legal issues. In short, don’t try this without the help of an experienced bankruptcy attorney.
One or both ex-spouses file after the divorce.
A post-divorce bankruptcy makes sense in several different circumstances. These include:
1. The spouses cannot agree to do a pre-divorce joint bankruptcy.
2. One spouse has an uncertain financial future and should postpone bankruptcy.
3. One spouse does not need to file a bankruptcy and the couple would lose assets in a pre-divorce single spouse bankruptcy.
4. The couple does not qualify for a bankruptcy together but each spouse can separately.
5. The couple could not protect all of their assets in a joint bankruptcy but could in separate bankruptcies.
With regard to those last two examples, sometimes couples can plan the divorce to protect assets or qualify for a single spouse bankruptcy. After the divorce it will be too late. If you are divorcing and think that you may need to do a bankruptcy then you should consult with a debt relief attorney now.
So, bankruptcy and divorce – the “happiness package” – is it right for you? The answer depends a lot on your unique situation. Talk to a WBG attorney to help you sort through the options.
More bankruptcy questions? Check our our FAQ page.
This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.
Image Credit: flickr/Rusty Clark