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Tips to heed if you're filing for both divorce and bankruptcy

As readers know, a divorce requires the parties to legally divide their marital estate. That includes not only property that was acquired during the marriage, but also any joint debt obligations. In the case of substantial debts, it may make sense to consider filing both for bankruptcy and divorce. The timing may also be important.

An important principle to keep in mind is that both proceedings carry a legal obligation, so consistency is ideal. For example, it would make no sense to discharge a spouse’s share of an unsecured joint debt via bankruptcy, only to reestablish liability by subsequently agreeing to share joint responsibility for it in a divorce settlement. Conversely, a bankruptcy filing might not remove a payment obligation on a joint account that an individual agreed to in the divorce settlement.

Our law firm has experience helping clients in matters of both divorce and bankruptcy. If a client is pursing both, we can help navigate through the paperwork and timing issues to achieve the best possible outcome. For example, if an individual is concerned about minimizing the impact to his or her credit, we might recommend a short sale instead of a foreclosure.

The automatic stay provided by a bankruptcy filing provides instant relief by halting creditors' collection efforts. That means that, although the filing is listed on an individual’s credit history, any late payments won’t be reported after the filing date. However, some post-filing events will still be reported, such as a foreclosure, even if made at the direction of the bankruptcy court.

A short sale, in contrast, generally won’t be reported. With the lender’s approval, this type of arrangement permits the homeowner to sell the property to a purchaser for less than the mortgage debt owed.

Of course, adding issues of support and/or alimony to the mix can make going through a bankruptcy and divorce even more complicated. The good news is that a comprehensive financial inventory will expedite the process in both forums, and help an individual develop a post-divorce financial plan.

Source:, “Which to file first: Divorce or bankruptcy?” Justin Harelik, March 8, 2016

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