Should I file bankruptcy before or after divorce in Texas? This question can loom large for those already coping with the emotional toll and financial strain of ending a marriage. In Texas, where divorce follows community property laws, the stakes often feel higher. There isn’t a one-size-fits-all answer. Your best path depends on your unique circumstances, financial details, and the dynamics of your divorce.
Filing Bankruptcy Before Divorce: Pros and Cons
Filing bankruptcy jointly before divorce can be a smart move, especially if you and your spouse get along well. Here are some benefits:
- Lower Costs: Filing jointly can save on court costs and legal fees. You share the filing fee and attorney expenses.
- Simplified Process: It can make dividing debt and property easier. You might be able to keep more exempt property and use the automatic stay during divorce proceedings.
- Quick Debt Relief: A joint Chapter 7 bankruptcy can quickly eliminate qualifying debts like credit card debt and medical bills. This makes dividing property in divorce simpler.
Things to Consider:
- Income Limits: Your combined income must be below a certain level for Chapter 7. If one spouse earns much more, talk to an attorney about your debts and bankruptcy exemptions.
- Buying a Home: How soon you can buy a house after filing depends on your bankruptcy case details.
Chapter 13 Bankruptcy:
- Repayment Plan: This involves a repayment plan over several years. Both spouses are responsible for the plan until it’s done.
- Court Approval: You might need court approval for various parts of the plan, which can be tricky if things change during divorce proceedings.
Consider these points before deciding on your financial steps together.
The decision to file bankruptcy before, during, or after divorce can be complex. Use this interactive guide to determine the best option based on your circumstances. Answer the questions below to explore the most suitable path:
Find Your Best Bankruptcy Filing Option
Based on your understanding of Chapter 7 and Chapter 13 bankruptcies, use this interactive guide to explore whether you should file for bankruptcy before, during, or after divorce in Texas. Answer the questions below to see what suits your situation best:
Filing Bankruptcy After Divorce: Pros and Cons
Sometimes, it’s better to file for bankruptcy after divorce. If your joint income is too high for Chapter 7, you may qualify to file later if your separate income meets the requirements. After the divorce, any assets you keep are solely yours.
Unsecured debt, like credit card bills, can complicate financial matters between ex-spouses. It is especially important if one spouse files for bankruptcy.
A major issue is support orders. Child support, medical bills, or alimony payments in a Texas divorce decree cannot be discharged in bankruptcy. Consider whether discharging other debts will help or if it will require reimbursement as part of your property division.
If one spouse files for bankruptcy, non-exempt assets may affect property division. But, it varies with state rules for community property.
Filing for Bankruptcy During Divorce Proceedings in Texas
While many articles focus on filing for bankruptcy before or after divorce, we’ll discuss a less common situation: filing for bankruptcy during divorce proceedings in Texas. Although it’s possible, it’s rarely a good idea. This approach can create complex legal issues and cause delays in both cases.
Complications of Filing Bankruptcy and Divorce at the Same Time in Texas
Filing for bankruptcy and divorce at the same time can be tricky. Here are a few reasons why handling both at once in Texas can complicate things:
Asset Division Delays
When you file for bankruptcy, your non-exempt assets are controlled by the bankruptcy court. This can stop the division of marital property until the bankruptcy case is finished. Hence causing delays in the divorce and making it harder for both cases to progress.
Alimony and Child Support
Disagreements over spousal or child support can cause delays in your bankruptcy case. These payments affect your monthly income and expenses. And the bankruptcy court considers them when restructuring debt. Any uncertainty about support payments in your divorce might require changes to your bankruptcy plan.
Given the complexity of managing both cases at once, it’s generally better to avoid filing for bankruptcy during divorce. It’s usually best to address one issue first – either divorce or bankruptcy – and then handle the other afterward.
Chapter 7 vs. Chapter 13: Considerations for Divorce in Texas
Two common types of bankruptcy filings in Texas, and across the US, are Chapter 7 and Chapter 13 bankruptcy. Determining the ideal approach in the context of divorce requires careful consideration of your specific circumstances.
Understanding the Differences
A Chapter 7 bankruptcy is designed to give you a fresh start by eliminating dischargeable debts. It is also called liquidation bankruptcy. In a Chapter 7 bankruptcy, your non-exempt assets will be liquidated to repay a portion of what you owe to your creditors. However, in many cases, most of the assets that are owned by a debtor are exempt. This means that you may not lose assets in a Chapter 7 bankruptcy. Chapter 7 bankruptcy cases last just a few months and can rid you and your spouse of your obligation to repay unsecured debts.
It is important to consider the implications of joint debts in the context of Chapter 7 bankruptcy. Joint debts can complicate divorce proceedings, as one spouse’s bankruptcy can still leave the other liable for the entire debt. Addressing joint debts prior to finalizing a divorce settlement is crucial.
This swift resolution might seem appealing during a divorce; however, you must meet specific income requirements. If you are considering filing Chapter 7 you should think about the long-term effects, such as what a Chapter 7 bankruptcy does to your credit. For many, it can take a long time to recover.
If you opt for a Chapter 13 bankruptcy filing, it’s best to finalize your divorce beforehand. Unlike Chapter 7, Chapter 13 requires you to enter into a repayment plan lasting three to five years. Filing jointly for Chapter 13 before your divorce would mean remaining financially tied to your soon-to-be-ex-spouse throughout the repayment plan – likely an undesirable outcome. By resolving the divorce first, each person can then approach Chapter 13 as individuals, making a potentially smoother divorce process.
How Divorce Affects the Chapter 7 Means Test in Texas
In Texas, qualifying for Chapter 7 involves passing a means test, which examines your income and expenses. Divorce adds a layer of complexity: your combined household income could be too high to file jointly. You might be forced to wait until after your divorce to file separately, hoping your individual income falls within the threshold for Chapter 7 eligibility.
Conversely, if only one spouse earns a higher income while the other remains financially dependent, you might find it easier to qualify jointly for Chapter 7 before divorce. Your combined income might meet the threshold when filing jointly in a single household. After divorce, however, the higher-earning spouse might then make too much income to file alone, creating a catch-22.
Considering Spousal Bankruptcy and Its Impact
Imagine this scenario – your divorce is final, and suddenly your bankrupt spouse files for bankruptcy. How might their decision, a seemingly separate event, impact you directly? This often overlooked scenario necessitates careful consideration, even after a divorce is finalized, especially in Texas, where community property laws play a vital role in divorce settlements.
Understanding Debt Liability After Divorce
You may be asking yourself – can you file bankruptcy on a judgment? Yes, it’s possible that you can file bankruptcy on a judgment, but the question really becomes – should you file? Texas, as a community property state, dictates that debts incurred during the marriage, including joint debt, belong equally to both spouses – even if a divorce decree designates one person responsible for specific payments. Imagine this: your divorce decree assigns a shared credit card debt to your ex-spouse. Even after this court-ordered division, your name still appears on the account.
Now, if your ex-spouse files bankruptcy, creditors are no longer able to pursue them for payment. However, you are still obligated to the creditor. Despite the divorce decree outlining different responsibilities, you remain legally bound to this debt.
Community Property Considerations
Bankruptcy law recognizes the legal framework of a divorce decree but operates outside its bounds. Should your ex-spouse file for bankruptcy in Texas, creditors could turn their sights to you – the non-filing spouse – to recoup their losses. This is important to understand as you determine if you should file bankruptcy before or after divorce.
Factors Influencing Bankruptcy Filing Strategy in Texas
Debt type plays an important role. Chapter 7 eliminates most unsecured debts like credit card debt and medical bills. Chapter 13 requires a 3-5 year repayment plan.
Choosing Chapter 7 before divorce makes sense if financially viable. Quicker discharge eliminates shared debts sooner. However, Texas law does not discharge certain debts, including domestic support obligations and some divorce costs.
Consider the divorce’s complexity, shared or individual debt burdens, and potential bankruptcy type for fair property division. A bankruptcy court considers these factors in a bankruptcy filing. The division process includes assets owned by both parties.
| Factor | Filing Before Divorce | Filing After Divorce
|
|---|---|---|
Debt Type | Beneficial for primarily unsecured debts (Chapter 7) | May be more suitable if Chapter 13 is required |
Income Level | Joint income could exceed Chapter 7 limits | Individual incomes may fall within Chapter 7 limits |
Complexity of Divorce | Simpler if divorce is amicable | Easier if there’s significant conflict |
Protecting Your Financial Future
In the middle of a divorce and potential bankruptcy, it’s important to have legal help from both family law and bankruptcy attorneys. An experienced bankruptcy lawyer in Arizona says that consulting both types of attorneys can protect your financial rights. It will also help you navigate your case and make informed decisions for the present and future.
You’ve probably heard the phrase, “Money issues are the top reason for divorce.” A 2018 study by Ramsey Solutions found that money problems are the biggest source of conflict between couples. It makes sense. Even if you stay friendly during the divorce, it’s still a good idea to consult with professionals and understand how bankruptcy could impact your divorce.
You’ll also need to think about life after the divorce. For example, ask questions like, “How do we plan for our child’s college after divorce?” or “Am I ready to start dating again?” Though these conversations may be hard, having them now can set you up for success later. It’s also important to think about unexpected situations, like getting injured at work, and how to handle them.
Make sure to schedule consultations with both attorneys and bring relevant documents, such as pay stubs, tax returns, bank statements, loan agreements, credit card bills, and details about child support payments. This will give a clearer picture of your financial situation.
During this challenging time, you don’t have to go through it alone. Reach out to your support network—friends, family, therapists, or support groups. They can offer a listening ear, empathy, or simply a distraction when you need it. Their support can make a big difference as you work through both your emotional and financial challenges.
FAQs About Should I File Bankruptcy Before or After Divorce?
Can you file bankruptcy before divorce?
For example, filing Chapter 7 before the divorce can help clear marital debts before splitting assets. It may give both spouses a fresh financial start. It’s often easier for couples who are separating on good terms, as they can communicate well and gather documents for the process. However, the automatic stay that comes with filing for bankruptcy can affect divorce proceedings in some cases. So, be sure to consult your attorney.
Does bankruptcy clear a divorce agreement?
Since bankruptcy affects your credit score and your ability to get approved for financial products as a couple, it’s better to file for bankruptcy before getting married if you think bankruptcy is right for you. This helps avoid complications that could come up if you file during a marriage.
Is it better to file for bankruptcy before or after marriage?
Since bankruptcy impacts your credit score and ability to get approved for financial products as a couple (mortgages, auto loans, etc.), the answer is that it’s generally best to file for bankruptcy before you’re married, if you think bankruptcy is right for you. This avoids potential complications that can occur when filing during a marriage.
What do you lose when you file Chapter 7?
The fear of losing everything you’ve worked hard for is often a barrier when considering bankruptcy. In a Chapter 7, it’s natural to think this is the case, but it isn’t. Although often called ‘liquidation bankruptcy’ filing for Chapter 7 does not automatically equate to the loss of your house, cars, or other possessions. In many cases, people can keep their assets as they are exempt from the bankruptcy proceeding.
What if my spouse refuses to file bankruptcy with me?
You can still file individually, but the financial consequences—like liability for certain debts—may differ from a joint filing.
Is there a waiting period after divorce before I can file bankruptcy?
There’s no strict post-divorce waiting period; however, your new income and expenses must be accurately documented when you do file.
How does a prenuptial agreement factor into bankruptcy and divorce?
A valid prenup may influence property division, but bankruptcy courts still evaluate your assets and debts independently. The prenup doesn’t automatically override bankruptcy rules.
Does filing bankruptcy affect child custody decisions?
Child custody usually isn’t impacted by bankruptcy. Courts focus on a child’s best interests, not whether a parent has filed bankruptcy.
Can I file for Chapter 7 if I’m behind on spousal or child support payments?
You can file, but domestic support obligations are generally not dischargeable. Being behind on support can also complicate Chapter 13 repayment plans.
Conclusion
So, should I file bankruptcy before or after divorce in Texas? As you can see, the decision to file for bankruptcy requires careful analysis of your circumstances. Consult with an experienced attorney to weigh the potential benefits and drawbacks based on your situation. With the right information, resources, and support, you can navigate these difficult times. You’re not alone, and brighter days lie ahead. Good luck on this journey, and remember – it’s okay to ask for help. Always prioritize your financial and emotional well-being along the way.
If you are facing financial difficulties during a divorce, our team of expert bankruptcy attorneys in Texas is ready to help you. We can discuss your case, answer any questions you may have, and provide tailored advice on how to move forward. Reach out to us at (888) 584-9614 or contact us online for a free consultation. Take the first step towards resolving your financial and legal challenges. You don’t have to face this alone—help is just a call away.
