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Whether to file bankruptcy or divorce first

When a couple is considering divorce, financial issues are often considered. A couple may not be sure whether they should file for divorce first or for bankruptcy, since both involve the court system. However, if the couple works together, they can make decisions that will help both of them deal with the financial issues that arise when filing for divorce and bankruptcy. There are certain steps that Illinois couples should take to minimize their risk.

Generally, couples should file for bankruptcy before they file for divorce. A divorce can complicate bankruptcy proceedings because the terms of the divorce may impact a couple’s eligibility for bankruptcy relief. For example, a spouse may file for divorce and agree to be financially responsible for jointly held credit card debt. If a divorce is filed before the bankruptcy, a spouse can force the other spouse to pay on the debt after he or she completes the bankruptcy. So instead, a spouse should file for bankruptcy first and then for the divorce. The couple should not agree to pay on the debt as part of the divorce settlement agreement since the bankruptcy cleared one spouse of the responsibility to pay on it.

If the couple owns property that will need to be sold, they can then put it up for sale. This step can be taken after they filed for bankruptcy or divorce. It is not necessary for either process to be completed before selling the property. A short sale may be the best option for a company to avoid a complete foreclosure, but both spouses must consent to the sale if they are both on the mortgage.

Illinois family law attorneys may be able to assist individuals with getting a divorce. They may be able to help individuals reach an agreement regarding property division.

Source: Fox Business, “Which Should I File First: Divorce or Bankruptcy?“, Justin Harelik, July 10, 2013

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