Should I file for Arizona Bankruptcy or Divorce first?
Bankruptcy and divorce often go hand in hand – sometimes, the financial strain of divorce and support obligations leads to the filing of a bankruptcy action. Other times, the stress of financial crisis, which often precedes bankruptcy, may lead to additional strains on a marriage. In some situations, when you know you are heading for both, the question simply becomes: which do you file first?
It is important to realize that the answer may depend on the type of bankruptcy you expect to file. A joint filing in bankruptcy can only be done while the marriage is legally in tact, for one thing. Additionally, it may not be a good idea to file Chapter 13 if you anticipate a divorce, as the plan may not be manageable as a divorced couple. If you hope to file under Chapter 7, divorce may be helpful in order to establish a lower median income in order to qualify, if you have a lower income than your spouse.
The actual order of the filings may also affect their resolution. A divorce court, for example, would be unable to divide marital property if it is subject to the automatic stay in bankruptcy. A divorce court can only divide marital property once it has been deemed exempt under relevant federal or state law. Thus, a divorce proceeding will be on hold until your bankruptcy case has been closed. However, if you file for bankruptcy with the intention of later divorcing, it will be important to tell your attorney, to avoid conflicts of interest that might arise if your attorney represents both you and your spouse in a joint filing.
For many couples, divorced and together, bankruptcy is an effective means of shielding assets from creditors. But one should not expect to file after a support order has been granted from a divorce court in order to discharge the obligation. Support obligations are nondischargeable in bankruptcy.
These issues are complex and vary depending on the specific facts of your situation. An open and honest discussion with your attorney will give your attorney the facts needed to best plan and resolve your case in a favorable way. The sooner you discuss with an attorney, the better position you will be in. Before making any decisions about your bankruptcy estate or in relation to filing bankruptcy please contact a competent bankruptcy attorney.