When to file the bankruptcy
The stress of dealing with overdue bills and creditors calling can put a strain on any marriage. Frequently, divorce causes debt, or financial difficulties are a big factor in leading to divorce. If you are considering a divorce and have substantial joint debt, you should file bankruptcy before a divorce is final. By doing this, the debt component is greatly simplified in the divorce proceeding – if not eliminated completely. This not only takes away the worry about your creditors, but also leaves you with one less thing to deal with during the divorce proceeding.
The issue of spousal debt
The problem with filing bankruptcy individually after the divorce is final is that spousal debts are not dischargeable in chapter 7 bankruptcy. For example, if a couple have joint credit card debt and they file chapter 7 bankruptcy prior to a divorce becoming final, that debt will be wiped out for both of them. However, if the divorce occurs first and the husband is ordered to pay the debt and hold his ex-wife harmless for that debt, his options are limited. If he later needs to file bankruptcy, and he files chapter 7, his ex-wife can still take him back to state court to enforce the divorce decree. This could occur if the creditor pursues the ex-wife. Creditors are not bound by divorce decrees and can pursue the ex-wife regardless of what the decree said regarding liability.
Therefore, if at all possible, those facing both financial and marital trouble, should consider filing bankruptcy before their divorce. If it is too late and the divorce has already occurred, a debtor in bankruptcy does still have the option to consider a chapter 13 bankruptcy, which does discharge spousal debt.