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The Secret to Knowing When You Should File Bankruptcy After Your NJ Divorce is Final

Many people getting divorced are in serious financial difficulty and considering a chapter 7 bankruptcy to get a fresh start. Sometimes that difficulty is the very reason for the divorce! But the question that is often raised is, which comes first? Do I get divorced and then file, or do I file and then get divorced?

Well, as in many things in life, timing can be everything. However, when it comes to bankruptcy and divorce, I seldom see a big advantage to waiting until after the divorce to file, but there are some times when it is the right decision. I see two instances in which waiting could be good, and they are usually in a situation where only one spouse is filing.

Means Testing Issues

Filing bankruptcy means going through a means test analysis to determine whether a chapter 7 is appropriate, or whether you should be in a chapter 13 repayment plan. This involves looking at the household income for the six (6) months prior to the month in which the bankruptcy is filed. However, if your joint income during that period of time is too high, it could interfere with your being able to qualify for a 7.

Under those circumstances, it might be better to wait until after the divorce and after you are no longer living together. The change in household size and household income might create a more favorable situation in means testing. That is, of course, if there are no home equity issues.

Equitable Distribution Could Come Back to Haunt You

At the time you are considering bankruptcy, there may have been a determination or agreement as to the equitable distribution of the marital assets. However, that undropped second shoe could create an issue in a bankruptcy. Let’s say the divorce has not been entered yet, but the Property Settlement Agreement has been signed or an order has been entered.

Under the bankruptcy code, any assets that you stand to receive from that agreement, even if not received at the time of filing, can still be an asset of your “bankrupt estate” (and thus sold by the trustee) if it is received within six (6) months after filing. Who owns what in a divorce can be in flux, and sometimes the timing can be important. It is best that you have a bankruptcy attorney look at this to help you decide when to file.

So What Do I Do?

If you live here in the Gloucester County, NJ, area, are getting divorced, and are considering bankruptcy, please give my office a call at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your options. Each case is different, and you want to be sure that you get the fresh start you need.

Just looking for more information on how bankruptcy may be able to help with your divorce?  Then download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy. You should also check out my podcast, Bankruptcy Strategies in Divorce, with episodes every month!

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Steven J. Richardson
Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.