Many couples, when filing for divorce, often state that financial troubles are one of the main reasons their marriages failed. The rounds of arguing over who caused which debts, who spends money the most foolishly and which of the couple is the most responsible for pulling them out of debt are damaging. When the debt has gotten so out of hand that the couple knows they will have to file for bankruptcy, it may be best to file for it prior to the divorce.Even when a couple is determined to treat one another fairly and split up debt according to who incurred it, it should be known that there is a thing called “marital debt.” Marital debt belongs equally to the formerly married couple, regardless of which person initially built the debt up. If the former spouse that incurred all the debt files for bankruptcy after the divorce, creditors will then come after the other ex-spouse to recoup their money. Because this is the case, filing bankruptcy after the divorce undermines the attempt to amicably part free of each other’s debts.Because the creditors can come after the former that wasn’t responsible for the debt during the marriage, the ex-spouse may also need to file for bankruptcy. However, this creates a situation that is more costly than it would have been if the couple had filed a joint bankruptcy case before proceeding with the divorce. In most places, the filing fees for filling bankruptcy costs the same for a married couple as it does for a single person. When a couple knows that an individual bankruptcy won’t protect the other person after the divorce, it makes more financial sense to file together beforehand to save on filing fees.
In most places, a joint bankruptcy case can only be filed while the couple is still married. A bankruptcy filed before the divorce can also save money in terms of legal representation. Ex-spouses will have to pay for two lawyers to represent their cases during the bankruptcy proceedings if they file after the divorce. Many bankruptcy lawyers have flat rates for representing couples during proceedings that often come with a significant discount over the rates charged for filing two individual cases. Again, this makes more financial sense than going it alone after the divorce.
Filing for bankruptcy before filing for divorce may also help a couple ensure that they are eligible for a Chapter 7 bankruptcy which, with a few exceptions such as student loans, completely wipes the debt. Eligibility is determined by “Means Testing.” As with income tax, being married raises the threshold. In Massachusetts, an individual with an income of $26,748 for the six months prior may not be eligible for Chapter 7, but a married couple with no children who have an income of $32,088 for the previous six months may be.
Finally, though for many couples it may be too late, filing for bankruptcy may be the catalyst needed to save a marriage. Filing for bankruptcy to deal with mounting debt while entering into debt counseling and learning better money management practices may be all that’s needed for a couple to get back on track. This won’t work for everyone, but when the division is all about debt, it certainly can help. Even if it is too late for that, filing for bankruptcy before filing for divorce is the most cost-effective, hassle-free choice for many couples.