Couples who are carrying a lot of debt who are contemplating divorce often wonder if it’s better to file bankruptcy before or after the divorce is finalized.
Filing Bankruptcy Before Divorce
If a couple decides to file for bankruptcy jointly before they divorce they may be able to discharge both party’s debts and double the allowable exemptions which protects more of their assets. Discharging debt prior to divorcing will allow couples to end their marriage relatively debt free instead of dividing debt to tackle after the marriage is over.
Chapter 7 Bankruptcy Following Divorce
In other cases, couples may want to wait until after the divorce to file for bankruptcy because a decrease in income may qualify one for a chapter 7 bankruptcy that may not have been possible when looking at household income during the marriage.
The chapter 7 means test takes into account income, allowable expenses, and household size to determine eligibility. If one spouse holds the majority of debt and their income drops precipitously after the divorce, they may qualify for a full discharge of their unsecured debt under chapter 7 so waiting to file may be the better option.
It is important to note here that if you elect to divide marital debt in a divorce, even if a court orders a spouse to make payments to a credit card in your name, if he or she doesn’t follow through the credit card company will hold the cardholder responsible for the missed payments.
Furthermore, if your spouse agrees to pay off the credit cards in the terms of the divorce and later files for bankruptcy discharging his or her debt – the credit card company can turn around and pursue the card holder for the balance of the credit cards. If debt is to be divided in a divorce, a well thought out marital settlement agreement is crucial so one spouse is not left holding the bag.
Contact Our Experienced Bankruptcy and Divorce Attorneys
Every situation is unique and the more information you have will allow you to choose the best strategy for your circumstances. The attorneys of Andrew C. Ladd LLC not only practice bankruptcy law but also provide family law services including Wisconsin divorce. We can provide big picture answers to your questions regarding Wisconsin marital property and debt division in a divorce and your best options under Wisconsin Chapter 7 Bankruptcy. Because we specialize in both bankruptcy and divorce law, we can provide our clients with comprehensive legal services eliminating their need to seek separate counsel for their divorce and bankruptcy needs.