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It’s no secret that one of the biggest things that couples fight about is money.  And in these tough economic times, it doesn’t take a whole lot to push a couple over the edge… from a financial standpoint.  In certain situations, bankruptcy may be a viable option for you.  If you are considering filing for bankruptcy, whether you do it before or after you separate from your spouse can have a major impact on your legal options.

Filing before you separate can have some benefits.  First, if you decide to pursue a Chapter 7 Bankruptcy, the process takes about 100 days, and when you are done, there won’t be any debt left over to divide (except for certain non-dischargeable debts, such as student loans and tax debts).  This will make things very easy for your divorce attorney and should bring down the overall cost of your divorce.

However, as with everything in life, there are also some drawbacks to filing before you separate.  For starters, if you are the supporting spouse and you have lots of debt payments, these would be considered when determining how much money you would have to pay in alimony.  Once these debt payments are eliminated, then you would have a lot more money left over to pay support to your spouse.  Because alimony and child support are also non-dischargeable in bankruptcy, then you may be paying more in support because the other debt payments would no longer be considered in determining your ability to pay.  Thus, you could be sent right back to square one financially.

If you do decide to wait until after you have reached a separation agreement to file for bankruptcy, then there are some other issues you need to consider.  First, how things are worded in the agreement will have a profound effect on whether or not it is dischargeable in the bankruptcy.  Generally speaking, property settlement provisions in a separation agreement are not dischargeable in bankruptcy, nor are alimony or child support payments.  If you are the dependent spouse, however, you must be aware that if your spouse files for bankruptcy after the separation and property settlement agreement has been signed, then they may have more cash available for support.  For these reasons, you want to make sure you attorney includes some language in the property settlement agreement that addresses future bankruptcy’s and how it would affect your settlement.

Bottom Line?  If you are in a situation where bankruptcy is a possibility, and you are thinking about or have already separated from your spouse, then a collaborative divorce may be appropriate for you.  In a collaborative divorce, both you and your spouse can discuss and brainstorm all of your options together, with your attorneys present, and then jointly see a bankruptcy attorney if it is looking like that may be appropriate for your situation.

If you live in Wake County, then Travis Sasser is a fantastic bankruptcy attorney and I highly recommend him.