When Divorce and Bankruptcy Meet

 Posted on September 19, 2017 in Divorce

Sometimes, things simply go bad. It is thankfully rare, but it is not unheard of that someone would have to file for bankruptcy and divorce at the same time. If this happens to you, you may question whether or not to file for both at the same time, or if not, which matter to pursue first. Illinois divorce laws and bankruptcy laws make the answer to that question fairly clear.

Which to File First?

Illinois divorce law and bankruptcy law essentially make filing both petitions at the same time impossible. When you file for bankruptcy, you generally hand over your assets to the care of a bankruptcy trustee for sale or disposition as necessary to pay off your creditors. Once you have commenced a bankruptcy filing, you may not make unilateral decisions about your property. Technically it is no longer yours. Thus, there is nothing for a family court judge to divide.

Though you are not generally able to file both bankruptcy and divorce petitions at the same time, the question of which order you ought to file them in is up to the individual. In most situations, it is recommended to file for bankruptcy before divorce, especially if you get along well with your spouse. The reasons are straightforward in that if you file for divorce first, property division will almost certainly give you new assets, which will then almost certainly be sold to pay your existing debts. Therefor, filing for divorce before a bankruptcy filing can put you at a significant disadvantage.

The Advantages of Bankruptcy First

There are several reasons why filing bankruptcy before divorce is the best course of action. Illinois does allow married couples to claim two sets of exemptions if they file jointly, which means that double the amount of property can be kept out of the hands of the bankruptcy trustee. It is also possible to discharge joint debts in this manner if you have many of them.

An important thing to be aware of in this regard is that filing for Chapter 7 bankruptcy does have income limits. In Illinois, your monthly income must be below the median amount for your household size, or you must be able to pass the means test. If you are unable to do so, it may be in your best interests to file for divorce first, because then you and your former spouse should be able to qualify individually. If you intend to file for Chapter 13, however, you would both be responsible for the repayment plan.

If you do file for bankruptcy before divorce, be advised that you should also have a good enough relationship with your spouse to discuss support issues beforehand. If you have no income, or you will not have access to certain amounts of income, it does not make sense for a judge to require that you pay support based on that income.

A Legal Professional Can Help

If you are in a situation where bankruptcy and divorce are both on your horizon, an experienced divorce attorney can make all the difference. The compassionate Wheaton divorce attorneys at our law firm are well versed in the complexities of Illinois divorce law, and we will put that knowledge to work for you. Contact us today to discuss your options.

Sources:

https://www.law.cornell.edu/uscode/text/11/704

http://www.illinoisbankruptcy.com/exemptions.html

https://www.legalconsumer.com/bankruptcy/means-test/state.php?st=IL