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Filing Chapter 13 and divorce may be options for couples that coincide. This article will explain when and how to file for bankruptcy or divorce, depending on your circumstances. 

Many couples usually file for bankruptcy first before filing for a divorce because they can use a joint petition. If they file together, the joint petition will cover all of the spouses’ assets and income, as well as their total debts and expenses. It’ll also cover their individual debts and all these debts can be discharge through a single bankruptcy.

Filing for divorce and bankruptcy at the same time can be difficult decisions. Therefore, it is essential to consider the best time for filing. A spouse might not want to file for Chapter 7 until their divorce decree. This is because after the divorce, their income will be reduced and it’ll be easier to pass the means test which is a test that determines “whether an individual is experiencing enough hardship to be eligible for Chapter 7 bankruptcy” To learn more about the means test, read here.

Which Should You File First, Bankruptcy or Divorce?

This question comes up often. I’ve heard someone say “divorce bankrupted me”. Going through a divorce costs money can lead to bankruptcy if you’re already in debt. In most cases, filing for bankruptcy before filing for divorce makes more sense. 

The bankruptcy before divorce option works best if the parties are amicable and still living together.

Is there an automatic stay of divorce proceedings?

Filing bankruptcy during divorce is never a good idea. Filing for bankruptcy triggers an automatic stay, a court order prohibiting creditors from pursuing debt collection activities against the debtor. This includes pending divorce proceedings or other legal actions related to the debtor’s financial situation.

However, the automatic stay may not necessarily stop all aspects of a divorce proceeding. For example, issues related to child custody, support, and property division may proceed despite the automatic stay. In addition, the bankruptcy court may grant relief from the automatic stay to allow the divorce proceeding to move forward if certain conditions are met.

It’s also worth noting that the automatic stay is not permanent and will be lifted once the bankruptcy case is closed or discharged. At that point, any pending divorce proceedings may resume or continue as appropriate.

Need to speak with an experienced bankruptcy and divorce lawyer? Contact us

What happens if ex-spouse files Chapter 7

Filing Bankruptcy

If your ex-spouse files for Chapter 7 bankruptcy in Arizona, it may have several implications depending on the circumstances of your divorce settlement and any outstanding debts you may have jointly incurred.

In a Chapter 7 bankruptcy, a court-appointed trustee will liquidate the debtor’s non-exempt assets to pay off their debts. Any eligible debts not paid off through liquidation may be discharged, which means the debtor will no longer be legally responsible for them.

If you and your ex-spouse had joint debts, such as a joint credit card or a joint mortgage, the bankruptcy filing might discharge your ex-spouse’s obligation to repay those debts. However, the creditor may still hold you responsible for the entire debt, even if your ex-spouse’s portion of the debt has been discharged.

Suppose you were awarded certain assets in your divorce settlement, such as a house or a car, and those assets are jointly owned or subject to a lien or mortgage that your ex-spouse is responsible for. In that case, the bankruptcy filing may impact your ability to keep those assets. You may need to work with your attorney to determine your options for protecting your interests.

It’s also important to note that certain debts may not be discharged in a Chapter 7 bankruptcy, such as child support, alimony, and some tax debts. If your ex-spouse owes you any of these types of debts, you may still be able to collect them even if they file for bankruptcy.

The impact of your ex-spouse’s Chapter 7 bankruptcy filing will depend on the circumstances of your divorce settlement and any joint debts you may have incurred. 

Consult with Gaudiosilaw to understand your options and protect your interests.

Divorce while in chapter 13

Filing for divorce during bankruptcy Chapter 13 can have several implications for your case and divorce proceedings.

First, filing for divorce may impact your eligibility to continue in Chapter 13 bankruptcy. To file for Chapter 13 bankruptcy, you must meet specific eligibility requirements, including having a regular income and a certain amount of debt. If you are getting divorced and your income or debt situation changes, you may no longer be eligible for Chapter 13 bankruptcy. This could mean that your bankruptcy case may be dismissed or you may need to convert to a Chapter 7 bankruptcy instead.

Additionally, filing for divorce may impact your Chapter 13 bankruptcy plan. Your bankruptcy plan outlines how you will repay your debts over three to five years.  Depending on chapter 13 and divorce settlements, the bankruptcy could be affected. 

If you get divorced, your household income may change, impacting your ability to make Chapter 13 plan payments. Your bankruptcy case may be dismissed if you cannot make your plan payments.

Filing Bankruptcy After You Filed for Divorce but Before Your Divorce is Finalized

Filing any bankruptcy, whether it’s chapter 7 or chapter 13, creates an Automatic Stay (Stay). The Stay is a court order from the bankruptcy court that states all legal proceedings from wherever they are must stop upon the filing of a bankruptcy case. This would include divorce court. If you file a bankruptcy case while in divorce, you must notify the court that you filed. 

The divorce proceedings will be stopped until the Stay is lifted. This can cause delays in your divorce case because there’s relatively no time limit as to when your bankruptcy case might end. For chapter 7 cases, it can take about 4 to 6 months on average but could be longer if there are assets that are owned by the parties, which a chapter 7 bankruptcy trustee might be looking to liquidate. 

If you file a chapter 13, the plan payment period is 3 to 5 years. However, you can typically get the divorce case moving again after a few months.

In chapter 7 bankruptcy, you have a bankruptcy trustee administering your case. The trustee will be looking for assets that are owned by the parties. Since your divorce is not yet final, any assets you and your spouse own come into play for the trustee.

You must be very careful to list all assets owned by both parties, so the trustee does not surprise you by finding an asset to liquidate, which you agreed to allow your spouse to have. This may include any home, car or other property of significant value. It can be risky filing a case while in the middle of a divorce. Make sure you consult with an experienced bankruptcy attorney before filing any case. 

Finally, filing for divorce while in Chapter 13 bankruptcy can complicate the property division process. Any assets subject to the bankruptcy estate, such as your home or other property, must be addressed in both the bankruptcy and divorce proceedings. This can lead to conflicts between the two proceedings and complicate the process.

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