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Understanding How Bankruptcy Affects Divorce

Many New Jersey marriages falter due to financial problems. When people who are in this situation want to seek a divorce as well as file for bankruptcy, they should be careful about the order in which they proceed. There are several different scenarios that can affect the filing order for these two types of matters.

If a person with high debt is married to a person with a high income, that might make it hard for the couple to jointly seek a Chapter 7 discharge. When a couple is married, the bankruptcy court will consider the entire household income when determining eligibility for joint filing under the chapter. If that is the case, then the debtor spouse may benefit by waiting to file for bankruptcy until the divorce has been filed.

A similar scenario is when one spouse has a significant amount of separate assets. Again, the other spouse may be unable to qualify for Chapter 7 bankruptcy if they file for bankruptcy first. When both spouses have a lot of debt, they might want to consider filing for bankruptcy jointly before they file for divorce so that both can benefit from the debt discharge.

People considering both bankruptcy and divorce should understand that when a bankruptcy petition is filed, their assets will be considered to be property of the bankruptcy estate until their bankruptcy is discharged. This could potentially greatly slow down any pending divorce case, as asset division orders can not be issued until the bankruptcy is completed or unless the bankruptcy judge otherwise agrees.

Married individuals who find themselves in this type of situation may want to meet with a family law attorney regarding their filing order. Their attorney may then work together with a bankruptcy lawyer to help make certain their client’s financial interests will be secured.

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