Missouri Divorce Debts and Bankruptcy

During the course of your marriage, you may incur a variety of debts. If these debts become too difficult to manage, some divorcing couples might consider the pros and cons of discharging them in bankruptcy. However, you may be wondering what the implications of bankruptcy and divorce are — and whether you should file for bankruptcy or divorce first.

How are Debts Divided in Divorce?

Missouri follows the doctrine of equitable distribution when it comes to dividing marital property, assets, and debts in divorce. This doesn’t necessarily mean that debts would be divided equally — rather, they are distributed between spouses in a way the judge deems fair. The parties to a divorce can also settle the issue of property distribution outside of court between themselves, without judicial intervention.

Regardless of which spouse’s name the debt is in, if it was incurred during the course of your marriage, it would be considered a marital debt. Any debts that were acquired before you were married would be considered separate debt in divorce — and not subject to division. Similarly, any debts that were specifically designated as separate property in a prenuptial or postnuptial agreement would belong to the spouse who originally incurred them.

Should You File for Chapter 7 Bankruptcy Before Divorce?

Financial problems in a marriage are a common reason for divorce. Whether they are related to credit card debt, a spouse’s excessive spending, job loss, or hidden assets, Chapter 7 bankruptcy can wipe out qualifying debt for a fresh start. If you are considering bankruptcy and divorce, you might be wondering which proceedings to commence first.

By filing for Chapter 7 bankruptcy before divorce, you can reduce the number of property division issues that need to be determined during divorce proceedings. This can help to reduce the costs associated with litigating these matters — and save time that would otherwise be spent mediating them. In addition, while you are still married, you and your spouse may file for bankruptcy jointly or individually under Missouri and federal law. By filing jointly, you can eliminate the need for two separate bankruptcy filings — and reduce the cost of legal fees.

Depending upon the specific facts of your case, other advantages of filing for Chapter 7 bankruptcy before divorce include the following:

• By filing jointly before divorce, you can qualify for a higher income threshold under Chapter 7 and ultimately avoid the “means test.”
• By filing jointly during marriage, you can use Missouri’s double wild card exemption and the head of household exemptions with child exemptions.
• You can exempt double the amount of property by filing jointly.
• Joint bankruptcy can eliminate debt altogether and avoid the complex issues of who pays who for which debts after the judgment has been issued.
• While a divorce court can divide marital debt, it cannot alter a contract with a creditor. If the spouse ordered to pay in the decree fails to do so, the creditors can go after whichever spouse’s name is on the account. While the only remedy for this is a lengthy and costly contempt of court proceeding, the other spouse’s credit would potentially be damaged in the meantime.
• Although bankruptcy law will not allow a divorced spouse to discharge debts ordered in the divorce, the problem of collection and contempt may cause greater credit problems than the bankruptcy itself.

Bankruptcy and divorce can both take a considerable economic and emotional toll on you. But by filing for bankruptcy, you can rebuild your credit faster than you could have ever paid off the debt. Having the ability to leave your marital debts behind you can truly offer you a fresh start — financially and emotionally.

Should You File for Chapter 13 Bankruptcy Before Divorce?

While Chapter 7 bankruptcy can eliminate many unsecured marital debts, Chapter 13 bankruptcy allows you to enter into a repayment plan. However, since some or all debts must be repaid with this type of bankruptcy, the repayment plan can span the course of several years. If you file for divorce while a Chapter 13 bankruptcy is ongoing, you may need to modify the repayment plan that you entered into to reflect changes in your income or expenses. While Chapter 13 bankruptcy could significantly delay divorce proceedings, you might consider filing individually once the divorce has been finalized.

Contact an Experienced Missouri Divorce Attorney

If you are considering filing for both bankruptcy and divorce, it’s essential to have a skillful attorney who can advise you regarding how bankruptcy can impact debt division and your divorce proceedings. Divorce and family law attorney Mark A. Wortman provides dedicated representation to clients in the greater Kansas City, Missouri area who are facing divorce and a broad scope of family law matters. To schedule a confidential consultation to learn how he can assist you, please contact him today online or by calling (816) 523-6100.