What Happens When Divorce and Bankruptcy Coincide?

 Posted on October 17, 2023 in Divorce

Divorce is a complex and emotionally disruptive process that often involves the division of assets, liabilities, and financial responsibilities. In some cases, the financial strain and debts accumulated during a marriage can become overwhelming, leading individuals to wonder whether bankruptcy is a viable option to alleviate their financial burdens during divorce proceedings. If you believe a possible bankruptcy may intersect with your Illinois divorce, you need to ensure you hire a lawyer. Bankruptcy during a divorce can be a very slippery slope, as the legal complexities involved require the assistance of a legal professional. Without legal guidance, the already slippery slope becomes even more full of hazards.

The Relationship Between Divorce and Bankruptcy

Divorce and bankruptcy are distinct legal processes, but they can occasionally overlap. In simple terms, divorce deals with the dissolution of marriage, while bankruptcy addresses an individual’s or couple’s inability to repay their debts. Although they serve different purposes, there are instances where filing for bankruptcy during a divorce can provide financial relief and help individuals start fresh. 

Bankruptcy Prior to Divorce

In some cases, couples facing mounting debts may choose to file for bankruptcy jointly before initiating divorce proceedings. By doing so, they can discharge their debts and lift the financial strain before dividing their remaining assets and liabilities. This approach ensures a more equitable distribution of finances during the divorce process, as the couple starts with a clean slate. 

Bankruptcy During Divorce 

When one or both spouses are struggling with overwhelming debt during divorce, filing for bankruptcy individually may be a viable option. It is important to note that filing for bankruptcy during divorce can significantly impact the divorce process. The type of bankruptcy filed, such as Chapter 7 or Chapter 13, can have varying consequences on these aspects. 

Chapter 7 Bankruptcy and Divorce

This type of bankruptcy involves the liquidation of non-exempt assets to repay creditors. If one spouse files for Chapter 7 bankruptcy during divorce, their assets become part of the bankruptcy estate, potentially affecting the division of assets and the determination of support obligations. 

Chapter 13 Bankruptcy and Divorce

This type of bankruptcy involves creating a structured repayment plan to pay off your debts over a certain period of time. This type of bankruptcy can help people manage their debts while protecting their assets during divorce. However, it is essential to consider that the repayment plan may impact certain divorce issues. Discuss this with your attorney. 

Contact a DuPage County, IL Divorce Lawyer 

If you are considering pursuing bankruptcy during divorce, you must tread very carefully and ensure you have legal help by your side. Contact the skilled Wheaton, IL divorce attorneys with The Stogsdill Law Firm, P.C.. Call 630-462-9500 for a private consultation.