Sadly, the agony of divorce, especially ones caused by financial distress, can be compounded by the necessity of bankruptcy. Debts that were difficult to manage under one household will be even more so when the same income must support two. If it appears that a bankruptcy will
accompany a divorce, the question arises – what should come first? For a variety of reasons, it usually makes sense to pursue the bankruptcy first.

Division of Debt in Divorce

First, this makes the allocation of debt and the steep legal fees associated with negotiating them moot. They simply will go away. To understand the importance of this advantage you must understand the difference between property settlements (i.e. allocation of debt) and maintenance.
Allocation or assignment of debt pursuant to a divorce is dischargeable in bankruptcy but maintenance is not.

That is why family attorneys will fight hard and (thus expensively) to have debt characterized as maintenance. If successful, it cannot be discharged and the spouse is stuck with it. And if there is any doubt about the issue which there often is, you can find yourself back in court fighting over the issue, paying more legal fees.

Avoid a Monthly Payment Plan

Also, although allocation of debt is dischargeable it usually requires a Chapter 13… even if the person would have qualified for a Chapter 7. This means making monthly payments that never would have been paid had the bankruptcy proceeded first.

Two Separate Households/Easier to qualify for a Chapter 7

If both spouses ultimately have to file bankruptcy, as is usually the case, you will want to look at the situation as a two household and a one household. Sometimes, what would be a Chapter 13 as a single household could be, if split into two households, two separate chapter 7s. This
is much preferable because not only does it eliminate monthly payments but it makes the break between parties clean. After all getting a fresh start does not usually entail being financially linked to your soon-to-be ex-spouse. I can help you analyze these situations but this is an
analysis that needs to be done before the divorce.

Can ease negotiating over who get the child tax exemptions.

A common bickering point is who get the tax exemptions for any child involved. By taking that into consideration, I can asses the relative importance of these exemptions as it relates to a bankruptcy and help develop a negotiating strategy that takes this into account.

So, the risks of filing the bankruptcy after the divorce are many: Higher family attorney fees, having the debt become non-dischargeable and facing an otherwise preventable chapter 13 and the ensuing monthly payments. Lastly, if the spouses are in agreement they might be able to file
jointly – or separately—whichever is best…thus, preventing a Chapter 13 for one or both parties. In short, pursuing the BK first is usually cheaper, simpler and smarter.