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Bankruptcy and Divorce: What to Know in Northern Arizona

Divorce can be expensive. In fact, many people stay together because (1) it's more cost-effective to have two paychecks than one; and (2) the costs of a divorce can add up quickly. When you divorce, your assets are divided and this includes debt. One or both of you may not be able to afford the debt alongside the costs of divorce, and so you contemplate bankruptcy.

Bankruptcy is a common collateral consequence of divorce. In many ways, it makes sense: both a divorce and bankruptcy is a person's way to start over again or to get a fresh start on their lives. If you are seeking a divorce and worry about debt and expenses or if you are thinking about bankruptcy but know a divorce may be on the horizon, contact The Law Offices of Shawn B. Hamp today. We can review your case and outline your best options. 

How Do Bankruptcy and Divorce Affect Each Other?

Bankruptcy and divorce cannot occur simultaneously because each can impact the other. For example, as noted above, in divorce, assets must be divided, including debt. Consider that you file for bankruptcy and then immediately file for divorce while the bankruptcy is pending. Once you file for bankruptcy, a stay is placed on your assets. That makes the division of assets next to impossible during your divorce proceedings. 

So, the question becomes, which do you file first: bankruptcy or divorce? 

If you successfully claim bankruptcy first, then you won't have to worry about that debt during the divorce, but you need to know while the divorce is pending what debt you have or don't have. That means you have to file for bankruptcy first.

That said, filing for bankruptcy in Northern Arizona first may not be in your best interests. For example, the combined incomes of both spouses may disqualify you from filing for a Chapter 7 bankruptcy. That means you may qualify for Chapter 13 bankruptcy, but that bankruptcy option requires a repayment plan typically between three and five years, so that would complicate the division of assets process during the divorce proceedings.

Divorce First

Here are some factors you should consider to help determine if you should file for divorce before you file for bankruptcy.

  1. Do you and your spouse get along? If not, then your spouse may cause problems for you when you try to claim bankruptcy before or during a divorce, so filing for divorce first may make more sense.
  2. Does your spouse make considerably more money than you? If so, then you may want to divorce first. If your combined incomes prevent you from filing a Chapter 7 bankruptcy, you may qualify for the same after your divorce is final.
  3. Will you and your spouse jointly file for bankruptcy? If not, then you may want to go ahead with the divorce first so you know what assets and what debts are yours. If you file for bankruptcy before a divorce, then any debt belonging to your spouse could potentially become part of your debt via divorce and asset division. 

Bankruptcy First

Here are some factors you should consider to help determine if you should file for bankruptcy before you file for divorce.

  1. Do you and your spouse get along? If so, then you can both share the costs of a bankruptcy attorney and filing fees and file first so you can protect yourselves from paying joint debt.
  2. Do you own assets together? If so, you could benefit from filing bankruptcy first because Arizona – per A.R.S. § 33-1123 – allows married couples to double the amount in exemptions. Also, if you share assets and debt, filing for bankruptcy first makes the division of assets that bit easier when you file for divorce.
  3. Will you and your spouse jointly file for bankruptcy? If so, then you can save on filing fees and making the division of assets process easier if you file for Chapter 7 bankruptcy first.

As you can see, a lot of factors must be considered before deciding which to file first. Contacting an experienced family law and bankruptcy attorney is key to understanding what your best options are.

What Divorce-Related Expenses Can't Be Included in an Arizona Bankruptcy?

If you intend to wait to file for bankruptcy until after the divorce so that you can include expenses accrued during or after the divorce, you should know there are expenses that cannot be included in bankruptcy. Some of the most common types of non-dischargeable debts are:

  • spousal maintenance
  • child support
  • student loans (at least it is very difficult)
  • court fines or penalties
  • fines owed to the government
  • attorney fees for child custody or child support.

Contact a Family Law & Bankruptcy Attorney in Northern Arizona Today

If you are thinking of filing for divorce and bankruptcy, contact The Law Offices of Shawn B. Hamp at (928) 753-6868 to schedule a consultation. We are committed. We understand the legal issues. And we know you need the right kind of legal advice to help you move forward with your life.

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If you have been arrested or charged with a crime, you may be feeling frightened, anxious, and uncertain of what your future holds. The competent and experienced attorneys at the Law Offices of Shawn B. Hamp can help you during this difficult time. We are dedicated to fighting for the rights of our clients and providing excellent legal representation to those who have been accused of a crime. Contact our firm today to discuss your case.