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Make a plan when bankruptcy and divorce intersect

Divorce and bankruptcy are two big events that sometimes intersect. In fact, one of the top reasons cited for consumer bankruptcy filings is divorce. As a corollary, one of the common factors that leads to divorce is financial trouble.

If you are in this position, you need to think carefully about what you are going to do. Here are some important questions that you can ask yourself to help you come up with a plan:

When should you file your cases?

One thing that you may want to avoid is filing both cases at the same time. You should speak to your soon-to-be ex about which one needs to be a priority. You may find it best to get one case handled and then move on to the other.

If you file bankruptcy first, the automatic stay that goes into effect will typically prevents that family court from being able to divide assets. You would like have to wait until this is over to be able to handle the property division aspect of the case. This alone could make the divorce proceedings last a lot longer, which some may find difficult emotionally and financially.

How should debts be handled?

This depends on when the cases are filed. If the divorce is handled first, the property division process will happen normally. You and your ex will have to figure out who is responsible for which debts. When the divorce is finalized, you would typically file for bankruptcy as single individuals.

If you file for bankruptcy first, you will need to work as a team to determine which type of case to file. Typically, a Chapter 7 case is resolved much faster since a Chapter 13 requires you to make regular payments to the trustee for a specific number of years. However, there are many different factors to consider in deciding which bankruptcy would be best for a given situation.

What is included in a bankruptcy?

Many different debts could potentially be eliminated in bankruptcy, but there are some that can't. Spousal and child support are two that generally won't be extinguished by filing for bankruptcy. Certain tax debts and student loans also are generally exempt from elimination. In all of these cases, the debts will typically still have to be paid. 

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