The decision to consider divorce is a difficult one, even more so when compounded with the prospect of filing for bankruptcy. There is no single solution, but there are some options open to couples contemplating both divorce and bankruptcy. The biggest three questions to ask are the following: (1) whether to file, (2) together or separate, and (3) what order to file them. Getting these answers up front is paramount can avoid headaches down the road.
Working together is best: Most of the time, even when a marriage needs to terminate, couples have much to gain by working together, if at all possible. Just like custody issues (where couples usually try to work together for the benefit of the kids) a cooperative approach in a bankruptcy can have a big payoff down the road. Not only is it possible to combine legal fees and costs by filing together, but also creditors can be dealt with simultaneously and consistently between the spouses, often eliminating most of the issues left to fight about.
The best example of this is a joint chapter 7 before a divorce is filed. If the couple qualifies for chapter 7 they can jointly eliminate the kind of debt that is in the names of both spouses but for which the benefit really went to only one spouse.
I had a case where the husband and wife elected to file bankruptcy separately, and they didn’t even consider doing bankruptcy before the divorce. Instead, in the divorce they painstakingly separated debt responsibilities (who was going to owe what) andthen divided assets in a way that seemed consistent and fair, considering who was taking over other debt.
Of course, cooperating together is not always possible: we all know this. When it comes to a chapter 13, attorneys are reluctant about representing a married couple in the longer chapter 13 situation if they are contemplating a divorce anytime soon, because the possible conflict of interest that may emerge. The lawyer can never “pick” which side he or she thinks has the high road and is the one he could help in any manner that would or could hurt the other.