It is not uncommon for individuals, or couples, going through a legal separation, or divorce, to be struggling with finances as well. Legal separation can wreak havoc on an individual's already distressed financial situation such that filing for bankruptcy can be a compelling option. However, there may be some legal issues with filing for bankruptcy before a divorce is finalized or while separated from a spouse.
As an initial matter, filing for bankruptcy can be done individually, even while still married. However, it may be to both your, and your (soon-to-be-former) spouse's, benefit to file jointly. It may not be. How any given bankruptcy will work out is highly dependent on the facts of any given case. Generally, the main considerations are whether the debts you are trying to escape are joint marital debts or individual debts, and whether the marriage owns property a bankruptcy trustee can sell off.
Marital and Individual Debts
For those going through separation, on top of all the bills and debts one normally would pay, there are likely costs associated with obtaining and maintaining a new residence, as well as an attorney or court costs associated with the separation or divorce. Normally, any new debts incurred after separation will be attributable to only the spouse that incurred the debt, however, if there are joint credit cards or accounts, joint debts can continue to accumulate.
Joint debts, or debts that are incurred during the marriage that can be attributable to both spouses, will only be discharged against the spouse that files for bankruptcy. So if only one spouse files, the joint creditors may seek to enforce the debt against the non-filing spouse.
Reachable Property
The marital home is frequently the largest asset a married couple will purchase and own together. A person, couple, or family's home is also the largest exemption that most people can claim during a bankruptcy. However, the homestead exemption varies from state to state, with some states providing nearly no protection, while a few places provide protection that can be easily abused by the wealthy. If only one spouse files for bankruptcy, if they are co-owners of the family home, it may be reachable by creditors to satisfy outstanding debts, depending on the allowable state homestead exemption.
Essentially, a separated individual should discuss with an experienced bankruptcy attorney whether they can or should file separately, or jointly, or wait for a final decree of divorce before filing. Filing for bankruptcy may have a significant impact on a pending divorce or permanent separation, not to mention an individual's credit (which can be exceedingly important after a divorce or separation).
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