When Pennsylvania couples find themselves headed for both divorce and bankruptcy courts, they might want to take a step back and consider which to file for first. That's because one could have a substantial impact on the other.
For example, if one spouse has a high amount of debt but the other has high income, the debt-ridden spouse may not be able to file for a joint Chapter 7 bankruptcy while married, since total household income is considered in a bankruptcy petition. On the other hand, if both spouses have significant debt, filing for bankruptcy before the divorce may be beneficial if both agree to the bankruptcy filing.
Filing for bankruptcy before a divorce may also impact the property division later on. The assets of a filing debtor become the property of the bankruptcy estate and cannot be divided during a divorce without special permission from the bankruptcy court. In this case, the couple may want to divorce first before seeking debt relief through bankruptcy. Also, if one spouse has significant property and other assets, perhaps inherited, the spouse with debts may not qualify for bankruptcy relief.
Divorces can be complicated, and adding bankruptcy into the equation increases the complexity of the picture. The couple's assets and liabilities play a large role in determining whether to file for divorce or bankruptcy first. Each situation is different, so couples may want to consult with their respective family law attorneys who may be able to advise them on the proper course of action for them to take. A divorce lawyer also may be able to work with a bankruptcy attorney to ensure both processes work smoothly.