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Filing for Divorce and Bankruptcy at the Same Time

By Tolison & Williams / July 7, 2020

It's easy to assume that solving two matters at once — bankruptcy and divorce — can make both of them less grueling. In reality, doing so is neither legally feasible nor cost-efficient. What's more, filing for divorce and bankruptcy at the same time can make the two processes even more expensive. So before you make any decisions, consider the alternative options and weigh those against your unique circumstances.

Why Not to File for Divorce and Bankruptcy Together

Even if you file both motions simultaneously, the Colorado court will not prioritize either of the proceedings. In most cases, your 'double-filling' will result in a prolonged divorce as the courts will be forced to work on resolving both matters. 

When you are filing for divorce and bankruptcy at the same time, two scenarios are possible: 

  • Firstly, a court may decide to prioritize your bankruptcy case, triggering the  “automatic stay” — a special provision that prevents creditors from contacting you. But it also means that all of your assets are frozen, until the bankruptcy, whether Chapter 7 or 13, is discharged. 
  • Alternatively, the court may decide to suspend your bankruptcy motion until all the division of marital debts and assets is completed. 

Because divorce involves the division of assets, that division cannot happen until the court (and you) knows what assets you actually have left to divide. So overlapping these two fillings becomes very complex.

In addition, if you plan to file jointly, the same lawyer would not be able to represent both of you in a bankruptcy case. Doing so would be considered a conflict of interest. Thus, one of you will have to get a new lawyer, which means extra divorce costs.

Rather than filing for bankruptcy and divorce at the same time, it’s best to sequence the motions one after another. Which one you choose to do first depends on your personal circumstances, and there are certain situations where filing for divorce first or filing for bankruptcy first will benefit you more. 

 

When to File for Bankruptcy First

If the divorce is amicable, it's better to file for bankruptcy first. Because most debt is marital, some-to-most of that debt may be discharged, and some assets may be lost as well. So, when the divorce is finally filed, there will be less debt for each spouse, and remaining assets can then be divided up in an equitable way. You should know that some debt may only belong to one spouse and cannot be discharged in bankruptcy – a student loan, for example. Also, in an amicable case, both spouses are able use the same lawyer for the divorce instead of paying for two.

If you are eligible to file bankruptcy under Chapter 7, it’s best to handle the bankruptcy first. The average time for discharge is usually three to six months. Thus, your divorce will not be held up for a long time.

 

When to File for Divorce First

If you are in disagreement with your spouse and expect the divorce to be contested, it’s best to formalize your separation first. Even if the court has to make the final decisions during the divorce proceedings, debt and assets will be divided and each spouse will end up with a portion of each. Once that divorce is decreed, then either spouse can proceed with a bankruptcy that only involves their debt and assets. 

If you are planning to file for bankruptcy under Chapter 13, it’s best to get a divorce first. This type of filling assumes a certain type of repayment plan for some of the debt, usually over a five-year period. If you and your spouse are not on friendly terms, and you have filed for bankruptcy first, you will both be “entangled” for five years after the divorce. This can be very unpleasant.

While divorce and bankruptcy are both emotionally stressful, it’s important to look at both as a chance for a new beginning. Most important, though, is that you get some sound legal advice about your options and which will be best for you. If you live in Colorado, Tolison & Williams can help answer any questions you have!

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Tags: Divorce Family Law Cost

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