When people file for bankruptcy and undergo a divorce almost simultaneously, they may wonder–should the divorce or the bankruptcy come first? This is an complicated question, particularly when elements like assets, debt and property division come into play.
One bankruptcy adviser suggests that someone who has no other option than to file for both should file bankruptcy before undertaking divorce proceedings. This strategy may help a filer walk away with less debt than if he or she had initiated divorce proceedings before finalizing the bankruptcy. Because Florida is a deficiency state, divorcing homeowners who foreclose on their property are still liable for the amount owed on the property. However, if someone files bankruptcy before declaring divorce, he or she may not be liable for debt owed on shared marital property. This might also prevent liability for other types of shared debt, such as credit card debt.
For instance, if a husband and wife jointly own property and that property is in debt, both the husband and wife are partially responsible for the debt. If the husband is eligible for bankruptcy and decides to file, then he no longer retains responsibility for paying his portion of the debt. He could file for divorce and walk away from the marriage and joint property debt with a somewhat clean slate.
It is important to note, though, that people who file bankruptcy and then pursue a divorce without carefully reviewing their divorce agreements can easily reinstate their debt liability, which would essentially defeat the purpose of filing bankruptcy. In complicated situations like these, a divorce and property division lawyer may be a valuable resource.
Source: Forbes, “Foreclosure, Deficiency Judgments and the Perils of Anti-Deficiency Statutes,” Jay Adkisson, June 24, 2012.
Source: Fox Business, “Which Should I File First: Divorce or Bankruptcy?”, Justin Harelik, July 10, 2013