Bankruptcy: Before or After Divorce

Posted: 6 December, 2019

Bankruptcy can be a complicated process. If you are going through a divorce, the situation can become even more baffling when you add the issues of community debt and separate debt. A divorce will surely affect your bankruptcy and a bankruptcy will surely affect your divorce.

Bankruptcy During a Divorce in Nevada

Bankruptcy during a divorce in Nevada, however, can significantly impact and even slow down the divorce process. Couples may choose to file for bankruptcy jointly or separately. Once the bankruptcy is filed, you will need to list all property and debt whether it is separate or community. Community debt or property is that which was obtained during your marriage, or “the community”, and you and your spouse hold title. Separate property or debt is that which was brought into the marriage.

Types of Personal Bankruptcy in Nevada

You may be eligible to file for bankruptcy in Nevada under chapter 7, also known as “straight” bankruptcy, or chapter 13, known as “reorganization” bankruptcy. Chapter 7 entails the liquidation of your assets in exchange for the elimination of your debt. In general, under federal bankruptcy law, filers are entitled to keep certain exempt property such as a home and vehicle. Under chapter 13, your debts are reorganized, and you are required to pay off a specified amount of your debt over a three- to five-year period.

In general, financial obligations related to divorce such as alimony, maintenance or child support are not considered dischargeable under bankruptcy law, meaning you are still required to make any payments as mandated by the divorce decree. Under 11 U.S.C. Section 523(a)(15), there are certain situations in which these obligations may be discharged.

Possible Scenarios When Filing Bankruptcy During Divorce in Nevada

While every case is different, there are some fairly typical scenarios involving bankruptcy during divorce:

  • The spouses mutually agree upon the terms of the divorce and agree to file for bankruptcy jointly. In this case, all eligible community debt, which is debt acquired during the marriage, and separate debt, which each spouse brings into the marriage, is discharged in accordance with bankruptcy law. This is usually the more desirable scenario, as it simplifies and helps to speed up the divorce process. The couple may also choose to file for bankruptcy and have the case resolved before filing for divorce to simplify the ensuing divorce process even further.
  • The spouses cannot agree on the division of property and debt, electing to file for bankruptcy separately, or only one spouse chooses to file. If this situation occurs, the divorce process is likely to be put on hold until the bankruptcy is resolved in federal bankruptcy court. Sometimes, in contentious divorce situations, the better alternative may be to wait until the divorce is settled and finalized before filing for bankruptcy. This allows each party to know exactly where they stand in terms of the property and debt they will own, which can ultimately help them determine whether filing for bankruptcy is truly in their best long-term interests.

Divorce and bankruptcy are complex, especially when filed together. Because of the many complications that bankruptcy can bring to a divorce, the prudent course of action may be to consult with an experienced Las Vegas divorce attorney. If the prospect of divorce and bankruptcy looms in your future, call RIGHT Lawyers at (702) 832-4176 for an initial consultation or contact us today.