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Bankruptcy: Before or after your divorce?

If you are in debt and you and your spouse have decided to get a divorce, you may be concerned that you'll need to file for bankruptcy. One thing you should also be asking yourself is if you want to file before or after your divorce.

Filing before or after a divorce can be the right choice depending on the specifics of your case. For example, if you have a simple bankruptcy case and plan to use Chapter 7 bankruptcy, then you may want to file before your divorce. It can be completed in just a few months, so you can file jointly, discharge your debts and then divorce.

Chapter 13 bankruptcy takes much longer, up to five years, so starting this process before your divorce doesn't make much sense. If you decide to divorce in the middle of a Chapter 13 bankruptcy, then the bankruptcy case has to be separated or closed when you end the marriage. Essentially, it's disruptive to the bankruptcy if you divorce while it's in process.

Another reason to file for Chapter 7 bankruptcy before divorce is that you may have greater exemptions allowed. That means that more of your assets would be protected and able to be divided when you divorce. Single bankruptcy filers often have smaller exemption limits.

How do you know which option is right for you?

The only way to know for sure is to sit down with your budget and decide if a bankruptcy is the right choice for you. If it is, then you should talk to your spouse about going through a bankruptcy prior to the divorce. If you are on good terms, resolving your debts prior to divorce can be a great benefit for both of you.

On the other hand, if you don't get along with your spouse enough to file together or if the bankruptcy doesn't make sense with your current financial situation, then you may want to wait until your divorce is finalized and pursue a bankruptcy on your own in the future.

Your attorney will talk to you about your options if you bring up your concerns about marital debt. Since marital debts are split evenly in California, an early bankruptcy may end up being the right option for both of you, so long as you can both agree to move forward with it before you go through a divorce.

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