Facing bankruptcy and divorce simultaneously is one of the most challenging legal situations a person can face. The order in which these events occur can significantly impact your debt relief, asset protection, and overall financial recovery. At Axelrod & Hellier LLP, we assist individuals and families in Northeast Ohio to navigate these complex situations with clarity and empathy.
Why the Timing Matters
Bankruptcy and divorce are governed by different bodies of law – the federal bankruptcy code under Title 11 of the U.S. Code and state family law, respectively. However, they interact significantly. Decisions made in one process can directly affect options in the other. For example, the automatic stay triggered by a bankruptcy filing can temporarily halt divorce proceedings, and a finalized divorce decree can determine which debts are considered “yours” for discharge purposes even if they were incurred during marriage.
Filing Bankruptcy Before Divorce
Filing jointly before divorce can be beneficial when both spouses have significant unsecured debts, such as credit card balances, medical bills, or personal loans. A joint Chapter 7 bankruptcy can quickly discharge shared debt, often within three to six months. This can simplify the eventual divorce process by reducing the number of financial disputes that need to be resolved.
Another key benefit of joint filing is the cost. There is only one filing fee and one set of attorney’s fees. The court process is also simplified, as there is no need for separate court appearances. Couples who file jointly can also take advantage of federal exemptions, which are doubled, although Ohio has its own state exemption schedule under the Ohio Revised Code §2329.66. This doesn’t allow for doubling, so the structure of jointly-owned assets becomes a crucial planning consideration.
However, filing jointly requires cooperation. If your relationship has reached a point where cooperation is no longer possible, or if one partner is hiding assets, a joint filing could complicate matters.
Filing Bankruptcy After Divorce
Post-divorce bankruptcy can be a better option when spouses have disagreements, when one spouse earns significantly more, or when the divorce process is contentious. This allows each spouse to file separately and focus on their own financial obligations.
Under a Chapter 13 repayment plan, a debtor can protect non-exempt property and catch up on missed mortgage or car payments over three to five years. This plan is designed to help people who have a larger share of marital debt after a divorce. The plan offers structured relief tailored to the individual’s new financial situation.
One important thing to note: Under 11 U.S.C. § 523(a)(5) and (15), domestic support obligations, such as alimony and child support, are not dischargeable in bankruptcy. Additionally, obligations assigned to you in a divorce decree regarding property division may be protected from discharge, depending on which chapter of bankruptcy you file under.
The Means Test and Income Considerations
Eligibility for Chapter 7 bankruptcy depends on passing a means test, which compares your income to the median income in your state. In Ohio, the U.S. Trustee Program publishes current median income figures that can be used to determine eligibility.
If you file for bankruptcy while still married, both spouses’ incomes will be counted, which could disqualify your household from Chapter 7. However, if you file individually after divorce, your income may be lower, making Chapter 7 more accessible to lower-earning spouses.
Protecting Your Home and Property
Divorce and bankruptcy can have complex interactions, especially if the marital home is involved. Proper planning with the assistance of a qualified attorney can make all the difference in preserving or losing your most valuable asset.
Every family’s financial situation is different. The best time to file for bankruptcy in relation to divorce depends on your income, assets, debts, and the nature of your relationship with your spouse. There is no one-size-fits-all answer, rather the right answer is based on your specific circumstances.
Talk to an Attorney Before You Decide
At Axelrod & Hellier LLP, we bring decades of experience in both bankruptcy and family law to each client relationship. Since our founding in 2005, we have helped countless individuals and families in Northeast Ohio navigate these challenging situations, not only with legal expertise, but also with genuine concern for their peace of mind.
If you are considering bankruptcy or divorce, it is important not to guess at the order of events. The consequences – your home, debts, and financial future – are too significant. Contact Axelrod & Hellier LLP today for a free consultation and get the clear and compassionate legal guidance you deserve.