The saying "Timing is everything" certainly holds true when filing for bankruptcy. Sometimes, bankruptcy and divorce proceedings collide. Each legal proceeding can complicate the other and cause delays.
Typical complications include the following:
During a Chapter 7 bankruptcy, most of your property is included in the bankruptcy estate.
Federal legal actions, such as bankruptcy, take priority over state actions like divorce.
A divorce court cannot divide marital property when it lies in a bankruptcy estate.
Making Chapter 13 payments under the repayment plan can become complicated when you form two separate households, which is what occurs during divorce.
When you file for bankruptcy, creditors are likely to pursue repayment from your spouse, often making it necessary for your spouse to file for bankruptcy.
To keep matters relatively simple, you should consider finalizing one legal proceeding before beginning the other. Deciding whether to address bankruptcy or divorce first also requires careful evaluation. If you file for bankruptcy prior to divorce, you can file jointly, which saves on court costs and legal fees. Also, you may be able to take advantage of doubling certain bankruptcy exemptions as a married couple. By discharging joint debts during bankruptcy, you do not have to address them during property division for your divorce.
On the other hand, your combined income may make you ineligible to file for Chapter 7 bankruptcy. In this instance it may make sense to see if waiting to file bankruptcy until after you finalize your divorce qualifies you for Chapter 7 bankruptcy instead of Chapter 13 bankruptcy.