divorce and bankruptcy attorney in arizona
Bankruptcy and Divorce
 

Should I file Bankruptcy before or after Divorce?

This will depend on a number of factors. If you are already separated and not able to maintain contact with your ex for documents such as pay stubs and tax returns, it will probably be easier to proceed with a bankruptcy after getting a divorce. It will be literally impossible to file a joint bankruptcy without interacting with your ex.

If you are on better terms with your ex, you may want to file jointly. Even if you incurred debts during the marriage in your name alone, they may still be considered community property. This means that both spouses could be held liable for the debt. If you wait until after the divorce to discharge your community property debts, you will each have to hire your attorney, pay the court filing fee separately, etc.

Does filing Bankruptcy stop Divorce proceedings?

When you file bankruptcy, an automatic stay of protection goes into effect, basically freezing your assets. This can delay the proceedings, and your divorce in general. For this reason, you should decide which case you want to file first, and complete the first case before you begin the second.

How long after Divorce can you file Bankruptcy?

There isn’t a waiting period for filing bankruptcy after you complete your divorce. However, you will have to provide divorce documents for your bankruptcy if you file your bankruptcy within 6 years of the divorce.

Should one or both spouses file Bankruptcy?

If the majority of the debts in question were incurred by one spouse before the marriage, it may be feasible for only one spouse to file bankruptcy. However, Arizona is a community property state. Most of the debts you incur during the marriage, regardless of whose name they are in, will be classified as community debts.

Something to keep in mind is that you won’t be able to get a home loan for two years after your bankruptcy. If one spouse would only be on the hook for a few thousand dollars’ worth of community debt, it may be worth assuming that debt if they want to buy a house soon. 

Timing of filing Bankruptcy in relation to getting Divorced
                
Advantages of filing Bankruptcy first

Some of the advantages of filing bankruptcy first, such as saving money on attorney’s fees and filing costs, are listed above. Another advantage of filing bankruptcy is first is that some exemption amounts for your assets are higher when you are married. For example, in Arizona, a single bankruptcy filer is allowed to have up to $6,000 equity in a vehicle. Married filers may have two vehicles with $6,000 equity each, or one vehicle with $12,000. If your assets fall in the exemption amounts for married filers but not single filers, you may want to file your bankruptcy before your divorce.

Debts, like assets, can be used as bargaining chips during a divorce. For example, one spouse may agree to pay off a credit card in exchange for being able to keep a computer or bedroom set. If you complete your bankruptcy before your divorce, you will have less liabilities to argue over, and you won’t waste divorce attorney’s fees arguing over debts.  If your ex is assigned a debt in the divorce but files bankruptcy, the creditor can still pursue you for the debt.

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When Divorce should come first

A Chapter 7 bankruptcy lasts 3-5 months, while a Chapter 13 bankruptcy lasts 3-5 years. If you are on the brink of divorce, completing a Chapter 7 bankruptcy is more feasible than a Chapter 13.

You may also have an easier time qualifying for a Chapter 7 bankruptcy after a divorce. In Arizona, the median income level for a single earner with no dependents is $51,388. If you make above that amount, you can only qualify for a Chapter 7 bankruptcy if you pass the means test. If you are married with no dependents, that amount only raises to $64,543 even if both of you are working. If you divorce first, you won’t have to count each other’s income.

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Protecting both spouses during Divorce

Filing bankruptcy activates your automatic stay of protection. If the bankruptcy is filed after the divorce, only the filing spouse will be protected by the automatic stay. The automatic stay doesn’t only operate to freeze your assets and delay a divorce. The automatic stay prevents your creditors from foreclosing on your home, repossessing your car, garnishing your wages, or turning off your utilities as long as the stay is effective. The stay is effective until your case is discharged or dismissed. Collection on dischargeable debts will be halted permanently, while collection on non-dischargeable debts will only be temporarily suspended.

5 things to know about Bankruptcy and Divorce

1.       You may need to find a new attorney if you file divorce in the middle of an active bankruptcy. If you file divorce while you are represented by the same attorney, it creates a conflict of interest for your bankruptcy attorney. This can result in additional expensive attorney’s fees, so be wary of this when you decide which chapter to file and when to file your divorce.
2.       Domestic obligations, such as child support and alimony, aren’t dischargeable in a bankruptcy. Don’t delay your bankruptcy in the hopes of discharging your upcoming domestic obligations.
3.       If you are considering divorce, one of the few advantages of filing a Chapter 13 before divorcing is the possibility of lien stripping. You may be able to discharge any junior mortgages on your home in a Chapter 13 if you owe more on the home than what it’s worth.
4.       You will need to catch up on your taxes to be able to complete your bankruptcy. You may want to consider catching up on taxes before starting your bankruptcy or your divorce.

5.       Some law firms are full service, meaning they handle bankruptcies and family law cases. If you are unsure which case to file first, you should contact a full service firm for a consultation. Our office offers free consultations, which we can also hold over the phone. Call today to schedule your free consultation, discuss your options, and learn about our affordable payment plan options.

FAMILY LAW AND Bankruptcy FAQs

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ANSWER: 

The maximum wage garnishments for child support are much higher than for other types of debts. Most debt garnishments are capped somewhere between 15-25%. However, if a parent is in arrearages on child support payments, the maximums for wage garnishments increase exponentially. If the parent who owes child support has another dependent, such as an unemployed spouse or a minor child from a separate relationship, the maximum amount their wages can be garnished for back support is 50%. When the parent in arrears has no other dependents, the maximum amount that can be garnished is increased to 60%. The court will add another 5% to either of these maximums if the parent is more than 12 weeks behind on child support payments.

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ANSWER: 

A: Filing bankruptcy triggers the automatic stay, which stops most types of wage garnishments. Child support wage garnishments aren’t among the garnishments that are easily stopped by the automatic stay. The automatic stay from a Chapter 7 bankruptcy filing will have no effect on a child support wage garnishment whatsoever. For a Chapter 13 bankruptcy filing to stop a child support wage garnishment, the debtor must arrange for full payment of the arrearages plus interest in their payment plan.

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ANSWER: 

A: Child support is not dischargeable in bankruptcy. While it can be paid off in a Chapter 13 bankruptcy, it will never be wiped away like non-priority unsecured debts like medical bills and credit cards. The only way to get rid of back child support is to pay it or die, to put it bluntly. Child support, plus interest, will continue to accrue at the court-ordered rate unless it is modified, or the child reaches adulthood.

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ANSWER: 

A: Child support is eligible for modification when at least 12 months have passed since the last child support orders were issued. There must have been a “substantial and continuing change in circumstances” to warrant a child support modification. When it comes to income for child support purposes, “substantial” generally means a change of 10% or more. “Continuing” must mean the situation is unlikely to change- for example, a parent shouldn’t request to modify child support because they get sick and need to take a week or two off of work. But if that parent is laid off from their job and only able to find another job that pays substantially less, a child support modification is probably appropriate. A parent looking to reduce child support should explain this reasoning in a petition, file it with the court, and have the other parent served. The court will hold a hearing on the matter, and if the petition is granted, adjust child support moving forward. Child support can’t be retroactively modified, meaning you can’t go back and modify child support that is already owed.

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ANSWER: 

A: Which should come first will depend on your specific circumstances. One of those is whether you qualify for Chapter 7 and/or Chapter 13 bankruptcy. Because bankruptcy freezes assets, a divorce can’t be finalized until either type of bankruptcy has been completed once filed. A Chapter 7 bankruptcy is the shorter of the two, typically lasting somewhere between 3 and 6 months. A Chapter 13 bankruptcy will take either 3 or 5 years to successfully complete. Therefore, if two spouses wish to divorce but only qualify for Chapter 13 bankruptcy, it may be better to wait to file bankruptcy after getting divorced. However, there are benefits to filing bankruptcy beforehand. Additionally, waiting until after a divorce to file bankruptcy could bring your average household income down to a level where you qualify for Chapter 7 bankruptcy. The spouses may also split assets in a divorce, leaving less property unprotected by bankruptcy exemptions and at risk of seizure by the bankruptcy trustee.

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ANSWER: 

A: The major benefit of filing bankruptcy before divorce is that it can clear the spouses’ debts so that there are less issues to deal with during the property division portion of the divorce. Both assets and debts need to be split between the spouses during property division. Arizona is a community property state, so debts acquired by either spouse during the marriage belong to both spouses equally in divorce. However, orders can differentiate from a straight 50/50 split of debts to account for keeping assets or marital waste. Bankruptcy can clear most or all of the spouses’ debts so they can focus on splitting assets in property division. This is also beneficial because of the number of hours it will save, all of which is billed by the hour by divorce attorneys.

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ANSWER: 

A: One spouse could be ordered to pay community property debt in a bankruptcy, but creditors aren’t bound by family law orders. That means that if the spouse ordered to pay debts in a divorce discharges them in bankruptcy, the creditor can still pursue the other spouse for the debt, even though they weren’t ordered to pay the debt in the divorce. That spouse will need to ask the court to order the other spouse to reimburse them, or include a clause in the divorce agreement preparing for such a situation in advance.

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ANSWER: 

A: You can file your bankruptcy petition the moment your divorce is finalized, if you wish. However, if you are on the borderline of qualifying for Chapter 7 bankruptcy, you may want to wait a few months to file if it will bring your average household income down. A bankruptcy attorney can help you determine the best timing for bankruptcy after divorce based on your unique circumstances.

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ANSWER: 

A: There are two ways to qualify for Chapter 7 bankruptcy, so if you make more than the state median income for your household size, you may still be eligible to discharge debts in Chapter 7 bankruptcy through the means test. The means test is conducted by finding your average household income based on the past 6 months. Then, the debtor should deduct mandatory expenses from that average income. Things like taxes and student loans can be included, but spousal maintenance and child support could be huge expenses that help a debtor bring down their disposable monthly income and qualify for Chapter 7 bankruptcy. When disposable monthly income is within a certain range, or even negative, that debtor can file Chapter 7 bankruptcy despite earning more than the state median income. An experienced bankruptcy lawyer can help you determine which expenses you can use to reduce your disposable monthly income for the means test. Call 480-448-9800 for your free consultation with a member of our bankruptcy team today.

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