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The Secret to Knowing When You Should File Bankruptcy Before 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: Should I file my bankruptcy before by divorce is final?

Well, as in many things in life, timing can be everything. However, when it comes to bankruptcy and divorce, I recommend filing before the divorce is final in most cases. Here are the top four reasons:

You Are More Likely to Save the Marital Home

The marital home is often the biggest asset at issue in a divorce outside a pension. Fortunately, it is also is most often not at risk of sale in a chapter 7 bankruptcy because there is little or no equity.

However, if there is some equity, protecting it can sometimes come down to exemptions. That particular exemption is only available if the house is your residence at the time of filing.

But what if you are separated, and one spouse has moved out? Or what if you waited until after the divorce and one spouse moved out or title (and the resultant equity) was transferred from both spouses to one?

That can sometimes have a negative effect on the exemptions. The best scenario is that the bankruptcy is filed while both of you are living in the house.

Filing Bankruptcy is Cheaper and Simpler

Quite simply, married couples get a “two ‘fer” when it comes to filing bankruptcy. It is the only situation in which a joint petition can be filed. As it is usually the same amount of work to prepare a petition for two spouses as for one, the fees charged by bankruptcy attorneys are the same, and there is only one filing fee (which, as of this writing, is $335).

However, if you waited until after the divorce, each of you would have to file separately with separate attorney's fees and filing fees. This can make thing a lot more expensive, and often unnecessarily.

The Divorce Itself is Not Unduly Delayed

As a practical matter the equitable distribution of marital assets is the only issue in a divorce that is subject to the automatic stay in bankruptcy. As a chapter 7 bankruptcy usually takes about four (4) months to administer, the delay is not that great, and in the meantime, issues like custody, visitation, alimony and child support can still be resolved.

It Is More Likely That A Single Filer Spouse Will Get a Fresh Start

Many divorces come about due to high debt or fights about money. Even where they don't, debt can play a major factor. But if the divorce addresses the debt, it can have lingering effects.

If you enter into a Property Settlement Agreement as a part of the divorce that makes you responsible for marital debt, you can have a real problem getting a “fresh start” due to the non-dischargeable nature of that obligation in a chapter 7. It is therefore best to wipe it out before the divorce is entered or a PSA is signed.

So What Do I Do?

If you live in southern New Jersey, 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.