Divorce and bankruptcy: which should come first?

 Posted on February 19, 2022 in General Bankruptcy Topics

Going through divorce and bankruptcy separately is stressful even in the most amicable situations.

Dealing with both at once exacerbates the strain on you personally and financially. Here is some information to help you decide which proceeding should take precedence.

When should you file for bankruptcy before divorce?

One major benefit to filing for bankruptcy before filing for divorce is the possibility of canceling joint debts. When filing as a married couple, you should first understand how changes in your circumstances impact your ability to pay creditors.

A marital home in Maryland holds title as tenancy by the entirety which protects the equity in the home from most creditors in a bankruptcy proceeding. However, if a court grants a divorce decree, the title of the property becomes tenants in common, severing the protection of home equity. Another benefit to filing for bankruptcy before divorce is that remaining married can streamline the divorce process, decreasing legal fees and time commitment for each spouse.

When should you file for divorce before bankruptcy?

Filing for divorce before filing for bankruptcy is most important if you plan to seek Chapter 7, which cancels certain debts completely. In order to qualify for Chapter 7, your income must be less than the median income for your state. If your income is over the threshold in Maryland as a married couple, it could be beneficial to divorce before filing for bankruptcy.

The decision of whether to file first for bankruptcy or divorce is a personal one that you should discuss with your attorney. Be sure to understand the financial ramifications of filing for both bankruptcy and divorce before proceeding.