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Should I file for divorce or bankruptcy first?

Debtors in Tennessee should carefully assess Chapter 13 and Chapter 7 bankruptcy plan structures before selecting the one right for their needs.

It is not uncommon for married couples in Tennessee who are struggling in their relationships to also be struggling with their finances. Some of the time spouses may be able to band together and work through their financial troubles together. In other cases, however, it may make more sense to both spouses to end their marriage and try to work out their financial issues along the way.

If a couple makes the decision to divorce and find themselves still contemplating bankruptcy, how can they decide whether to file for divorce or bankruptcy first?

Different bankruptcy options may lead to different decisions

As My Horizon explains, one of the things spouses will need to determine is what form of bankruptcy best meets their needs. This may well dictate whether or not it makes sense to file for bankruptcy first or divorce first. A Chapter 13 bankruptcy can last as long as five years, with three years being the minimum length of time it spans. If this type of plan is selected, that may mean staying financially married to each other for quite a bit longer than desired.

Determine responsibility for any mortgage

According to Bankrate, special care should be taken when a mortgage is involved with a divorce. If the spouse who plans to leave the home may still have liability for the mortgage, filing for bankruptcy first may help protect that person from being responsible for the mortgage. However, some people also find that selling the marital home makes the most sense in part because of the complications associated with this debt in a divorce.

Assessing income and assets

In order to qualify for a bankruptcy plan, debtors must meet certain requirements. Among these are having an income within a certain range. Divorcing spouses should carefully evaluate their joint and separate incomes in order to determine which may make them eligible or ineligible for a particular bankruptcy plan.

Additionally, the laws do allow for consumers to retain some assets up to a certain value even in a Chapter 7 bankruptcy. The threshold for these exemptions increases for married couples making this another element to review carefully before making a decision. Some people may be able to keep homes or cars if they file bankruptcy jointly but not if they file separately, for example.

Professional input is recommended

The decisions to file for divorce and for bankruptcy individually are major ones in a person’s life. When potentially facing both at the same time, the need for professional and experienced input is even greater. Tennessee residents who may be ending their marriages and in need of debt relief should reach out to an attorney to help them make decisions right for their circumstances.