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How can you handle bankruptcy while going through a divorce?

On Behalf of | Mar 29, 2023 | Chapter 7 Bankruptcy

Divorce is one of the most difficult situations for California residents. However, financial problems can only compound it, which can lead to considering filing for bankruptcy. This is how you can handle Chapter 7 bankruptcy during such a time.

Filing for bankruptcy before divorce

If you and your spouse are planning on getting a divorce but you are heavily in debt with no way to alleviate your situation, you might want to file for bankruptcy. Unfortunately, although you can file for both at the same time, the two proceedings do not occur simultaneously. In most cases, the bankruptcy won’t take place until after your divorce is finalized and the court decides on property division. The best way to simplify things is to file for divorce first. However, this depends on the circumstances as it might be more feasible to file Chapter 7 bankruptcy first.

Filing for bankruptcy jointly

Because California is a community property state, you and your spouse are both responsible for any debts incurred during your marriage. In that situation, if your debt is large enough, it might make more sense for you and your spouse to file for Chapter 7 bankruptcy jointly to ease your financial burden.

If you and your spouse decide to file for Chapter 7, you must pass the means test. In Chapter 7, most unsecured debts are discharged, but court-ordered payments like alimony and child support during your divorce are not. A bankruptcy trustee is appointed to your case and will sell non-exempt property so that the proceeds can go toward paying back your creditors. You are able to keep exempt property such as your clothing, household items and appliances and certain other assets.

Bankruptcy during divorce might be necessary in some situations. If you’re unable to pay off your debts through other means, it’s a good last-resort option.