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Bankruptcy And Divorce – Which One First?

| Sep 21, 2023 | Divorce

Dealing with either divorce or bankruptcy can be an emotionally challenging and stressful experience, and these processes unfortunately sometimes happen one after the other. If facing this scenario, it can be useful to understand the various approaches that might help these processes progress more smoothly. Read about bankruptcy and divorce, determine which one to undergo first, and discover how a Tennessee family law attorney with Shepherd and Long, PC can help those facing both of these situations by calling 865-383-3118.

Understanding Bankruptcy and Divorce

Before determining whether to pursue bankruptcy or divorce first, here is a brief explanation of each process.

What Is Divorce?

According to the Department of Health, in 2020, more than 20,000 divorces occurred in Tennessee. Married couples can pursue two types of divorce in this state: uncontested and contested. The former relates to undisputed divorces that typically occur due to irreconcilable differences, whereas the latter concerns divorces where both parties are unable to agree on the divorce terms, resulting in the case going to trial for a judge to decide the terms for them. Either type will officially end the marriage.

In Tennessee, there are several suitable reasons for pursuing a contested divorce, including:

  • Adultery
  • Alcohol or substance abuse
  • Separation of two years without minor children
  • Bigamy
  • Sterility or impotence
  • Felony conviction
  • Improper marital conduct
  • Malicious or willful desertion (one year without providing a valid reason)
  • Pregnancy prior to the marriage without informing the other spouse
  • Abandonment
  • Not providing for the other spouse, either directly or negligently, despite having this ability
  • Not moving with the other spouse to Tennessee and living separately for two years
  • Malicious attempt on another’s life
  • Not reconciling two years after the introduction of a separate maintenance decree

What Is Bankruptcy?

Bankruptcy refers to the legal process, typically initiated by the debtor, whereby individuals or entities who are unable to repay their creditors can seek partial or complete debt relief. Bankruptcy procedures in Tennessee are similar to those of other states since federal law governs this process. However, Tennessee’s state laws do have an impact on what property individuals may retain when pursuing bankruptcy.

While various types of bankruptcy exist, outlined in the United States Bankruptcy Code, most people choose to file under Chapter 7 or 13, explained in more detail below:

  • Chapter 7: This process tends to be the more popular out of the two as it is typically quicker and cheaper to complete. That said, those who opt for this bankruptcy type who have more luxurious assets outside of the ones required for daily life might lose them if they cannot keep up with debt repayments. Additionally, this kind of bankruptcy offers no option for repaying car or mortgage payments at a later date, potentially resulting in a lost car or home when filing.
  • Chapter 13: Those filing for this bankruptcy type must repay their creditors either partially or in full via a repayment plan covering a period between three and five years. While more expensive than the previous option, it does present several benefits, including the ability to potentially retain all assets and prevent the repossession of a home or car.

Learn more about bankruptcy and divorce and see how a seasoned Tennessee family law attorney can be of assistance by reaching out to Shepherd and Long, PC.

What Happens to Bankruptcy in Divorce?

If one or both of the parties to a divorce may be pursuing bankruptcy at the same time, divorce courts will frequently suspend the bankruptcy process until they assign each party their respective marital assets and debts. Depending on the couple’s financial situation and other personal circumstances, they may wish to file for either bankruptcy or divorce first. Outlined below are the benefits of pursuing each route.

Bankruptcy After Divorce

For an individual interested in pursuing Chapter 7 bankruptcy, it can be beneficial to seek bankruptcy after divorce. The reason is that to meet the requirements for Chapter 7 that allow for the cancellation of specific debt types, the petitioner’s income must be lower than the state median. When a single spouse earns all or most of the couple’s income, getting a divorce first might allow each party to qualify for their own separate Chapter 7 bankruptcy.

Divorce After Bankruptcy

When couples have significant joint debts, filing for bankruptcy before a divorce can potentially help cancel these and prevent the court from splitting them between the parties during the divorce proceedings. Additionally, joint bankruptcies can sometimes speed up the divorce procedure and reduce legal fees; however, filing jointly requires each spouse to collaborate. In some states, couples who file for bankruptcy before a divorce could also end up keeping more assets than if they waited until after the divorce and filed for individual bankruptcy.

Why Do People File for Bankruptcy During Divorce?

After divorce, the household income of each partner usually falls, and debts and financial uncertainty rise. The divorce process splits the couple’s joint debts, and one of the spouses may pursue bankruptcy if they lack the means to repay these. Other factors that encourage people to seek bankruptcy after divorce include the inability to make child support and alimony payments, and no longer having financial support from the other partner, especially if only one spouse worked prior to the divorce.

What Happens When One Spouse Declares Bankruptcy?

In answer to “Does bankruptcy affect your ex-spouse?” if one former spouse declares bankruptcy, the other spouse is not liable for any debts accrued outside of the marriage, including loans, contracts, or credit cards in their name only.

However, responsibility for joint debts accrued during the marriage by the spouse declaring bankruptcy would fall to the other spouse. Such debts may include a joint bank account, credit card, or loan. This could potentially force this spouse to also file for bankruptcy if they cannot afford to repay these debts.

Contact a Tennessee Family Law Attorney Today

Careful planning can help reduce the complexity and cost of both divorce and bankruptcy. Deciding whether to pursue one of these processes before the other usually depends on an individual’s specific circumstances, so you may wish to consider contacting a Tennessee family law attorney to learn more about whether pursuing bankruptcy or divorce first is suitable for your own situation. Explore bankruptcy and divorce in greater detail and get help with your legal concerns by contacting Shepherd and Long, PC at 865-383-3118.