If you are facing divorce and bankruptcy, which should you file first? The answer depends upon your particular situation. One situation in which you may want to file for bankruptcy first is where most of your debt is joint debt with your spouse. You should file the bankruptcy petition prior to filing for divorce, wiping out all joint debt. This strategy will save you money. By filing a joint petition, you will pay less in legal fees for preparing and filing only one petition (versus two if you and your spouse file separately) and you will only pay one filing fee. This option will also eliminate the issue of division of debt in your upcoming divorce; one less issue to be argued over.
On the other hand, you may want to wait until you and your spouse have divorced if your combined income will put you over the threshold for qualifying for filing a chapter 7. In Massachusetts, there are two criteria that you must satisfy in order to qualify for filing a chapter 7 petition. First, your living expenses must exceed your income. That is, the amount of money that you spend on housing, utilities, food, clothing, transportation, medical expenses, child care and the like is greater than the amount of money that you bring in. This is usually the case for most people who are facing bankruptcy. The second criteria is that the income for your household must be less than the average Massachusetts household income for a family with the same number of household members. There are exceptions to this second criteria, but for purposes of this article, I will not elaborate as to the exceptions. The average household income in Massachusetts for a “household of 1” is $64,907.00. The average household income in Massachusetts for a “household of 2” is $81,339.00. For a “household of 3” and a “household of 4”, the average household income is $102,059.00 and $127,579.00 respectively.[1] These figures increase over time, so it’s important to check on the actual values at the time of filing.
It is important to know that there are certain “debts” that bankruptcy law will not allow you to discharge. These include payments for child support and alimony. If you have accumulated arrears for either alimony or child support, the timing of the bankruptcy with respect to the divorce is irrelevant. You will not be able to discharge your past due support payments. However, if money is owed by one spouse to another for a buy-out of marital assets, the argument can be made that the spouse is a “creditor” and the money owed to the spouse for the buy-out can be discharged. Under this fact pattern, filing for bankruptcy post divorce might be a better option.
As you can see, there are many different scenarios and many considerations in determining the timing of filing for both divorce and bankruptcy. It is best to seek the advice of legal counsel before taking any action in filing as the facts of your case will dictate which course of action to follow.
[1] These figures are as of December 1, 2020.