Filing Bankruptcy Before Divorce: Things You Should Know

On Behalf of Steele Law Firm PLLC | Mar 15, 2019 | Uncategorized

Not every Texas marriage is going to last a lifetime. In fact, yours may be among hundreds or thousands that end in divorce before 2019 comes to an end. Child-related issues may be among your highest priorities in such circumstances. However, like many spouses, you might also be quite concerned about finances. Some spouses file for bankruptcy before heading to divorce court.

Laws regarding such actions vary by state. If you’re considering immediate debt relief as a viable option in your current situation, you’ll want to seek clarification ahead of time of the regulations that govern such matters in this state. If it’s your spouse that is threatening to file bankruptcy, perhaps claiming it as a means to keep you from obtaining certain assets in divorce, you may also want to speak with someone well-versed in Texas property division laws, so you know how to protect your rights.

You live in a community property state

Texas is one of nine states that operate under community property rules in divorce. This means the court typically divides all marital assets 50/50 when spouses decide to sever their marital contracts. In addition to dividing marital assets, each spouse also incurs half of all liabilities arisen in marriage, as well. Thus, many spouses try to reduce their post-divorce financial distress by eliminating debt before filing for divorce.

You can work as a team

Perhaps you and your spouse rarely agree on important matters concerning finances. In fact, that may be one of the factors that prompted your decision to divorce. However, if you both agree that you want to walk away from divorce with as little financial damage as possible, you might decide that jointly filing for bankruptcy before you file for divorce is the best course of action.

If only one spouse is filing for bankruptcy

While Texas is a community property state, certain bankruptcy rules apply that may greatly affect your property division proceedings. For instance, if your spouse files for bankruptcy before divorce, community property enters into his or her estate, meaning 100 percent of the property in question will be listed with all other dischargeable debts in the bankruptcy process.

Non-dischargeable debts

Certain types of financial support, such as child support or alimony, remain active, even if the paying spouse files for bankruptcy. These and other debts are not dischargeable, such as court-ordered compensation due to a plaintiff as a defendant named in a personal injury lawsuit.

Get the facts before taking action

Both bankruptcy and divorce can have significant impact on your financial future. If you hope to maintain a sense of control over your finances and wish to avoid pitfalls that will drain your wallet in divorce, you’ll want to research the laws for both processes, so that you can make informed decisions and protect your interests as you transition to a new post-divorce lifestyle.

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