Will Bankruptcy Affect My Divorce?
It’s not uncommon for a couple to be concerned with bankruptcy when they are about to divorce. If you and your spouse have separated, contemplating divorce, and you have been unable to pay for your debts, you may be wondering whether to file for bankruptcy first or have bankruptcy and divorce filed at the same time.
How to Handle Bankruptcy And Divorce
A great number of Canadians filing for bankruptcy are struggling with marital issues. In most cases, there are financial issues in an ending marriage relationship; this means that the economic problem continues even after parties decide to separate or divorce. When there is no other option left, filing for bankruptcy relieves such issues. However, when one wants to get a divorce in Ontario, a few legal considerations must be observed. Spouses who choose to file for bankruptcy before divorce have a less complicated divorce process. Whether to file for bankruptcy before your divorce depends typically on:
- The amount of debt and assets you have.
- The kind of bankruptcy is filed.
If the only option left is to file for bankruptcy, and your relationship has hit a dead end. You may have chosen to file for bankruptcy jointly.
It’s advisable to file for bankruptcy before filing for divorce. As such, you can have all the details for your financial information filed together through a joint petition.
Why File For Bankruptcy Before Divorce
There are many benefits as to why a couple planning to divorce should first file for bankruptcy. Some of the reasons include:
- Less expensive: Filing a joint petition for bankruptcy makes it less costly than when each party files. If you decide to file for bankruptcy singly, you will use the same cost as you would have filed jointly.
- Less legal costs: If you need a lawyer for the process. Joint filing will mean fewer legal fees since you will most likely hire one lawyer. Yet, it would be wise to inform the lawyer about your impending divorce.
- You will have your qualifying debts discharge: Division of property and debt during divorce require having a keen understanding of how community and the separate property have to be treated for the purposed of divorce. Filing for bankruptcy before divorce helps you spend less time dealing with how debts will be divided among you. This would lead to less divorce costs. Where you may have more properties than your spouse; it would be wise to have a joint bankruptcy.
It’s worth noting that bankruptcy cannot be used to discharge alimony, child support, and other issues involved in the divorce. Meaning, every spouse has to be legally responsible for their debts before they are separated or divorced. And where one spouse files for insolvency, the responsibility of such will shift to the other spouse
Filing For Bankruptcy
The question of whether you can file for joint bankruptcy with your spouse is better answered by whether you will have to keep more property as you discharge your debts.
The primary purpose of anyone who is filing for bankruptcy is to get rid of their debts. When one spouse files for bankruptcy, the other spouse may still be liable for their own debts. It’s advisable that if you have few debts to allow your spouse to file for bankruptcy alone. Where such demand to file for bankruptcy arises, you may consider having it after divorce.
But whether your assets get affected will depend on whether you filed for bankruptcy before or after divorce. For instance, if you are divorced and have divided your assets with your ex-spouse, such assets will not be affected by bankruptcy. If you filed for bankruptcy before, your assets have to be used to offset your debts by the insolvency trustee.
Where you have signed a separation agreement and agreed that your debts will be split equally, you may still have to pay for your ex-spouse debts until they are paid off. For instance, if there was an agreement that your ex-spouse was to pay for your joint credit card, if he/she fails to honor the obligation, then you will still be liable for such debts. In such a scenario, you may be forced to go after your ex to ensure they pay such debts. But this would be tiresome and you would end up spending more money.
Work With A Lawyer
If you are wondering how to go about your bankruptcy and later divorce, talk to a lawyer. Provinces and territories have different rules on how they handle assets during bankruptcy.
There are exemptions concerning the kind of assets that may be exempted from seizure. That’s why you should consider working with an experienced lawyer when deciding on bankruptcy. Due to the issue of conflict of interest, you should also inform your lawyer about your forthcoming divorce. The same lawyer can advise you whether to file for bankruptcy and later divorce and how this may significantly affect your future.