Can you and your spouse file bankruptcy together when you are about to get divorced? Should you?
The last blog post suggested thinking long and hard about going into a three-to-five-year Chapter 13 case with your spouse if there was a major risk of your marriage not lasting that long. Chapter 7 “straight bankruptcy,” usually lasting only three-four months, presents a different set of important issues.
In either kind of bankruptcy you are legally allowed to file a “joint case” together as long as you are legally married. The real question is whether you should when you may not be married for long.
Filing Chapter 7 to Save the Marriage
It’s sensible to consider whether getting relief from your creditors could possibly have a hand in keeping your marriage together. If financial pressures are a big part of the anxiety that currently dominates your relationship, quickly getting rid of those overwhelming pressures could bring some sanity into your lives. Instead of constantly being on edge, you could have a measure of peace conducive to rebuilding your relationship. Instead of both feeling hopeless, the permanent discharge (legal write-off) of your debts could make the future look brighter, maybe giving you both more reason to re-commit to the marriage.
That’s not to view the situation with unrealistic optimism. Financial problems are often just one of the symptoms of deeper personal and relationship issues. But in the right situation, getting relief from debts can give a marriage immediate and long-term hope where there wasn’t any.
The Absolute Minimum Requirement
Before going together to talk with a bankruptcy attorney, think about whether the two of you still have the level of trust required to communicate honestly and comfortably about your finances. If one of you has some secret debts or assets, or if the relationship is no longer one of mutual respect, the meeting will not likely be productive.
Also, if one of you is not able to be honest with the other, going to see an attorney together would likely be largely a waste of everybody’s time because an attorney representing a husband and wife together is in most situations ethically forbidden from keeping one spouse’s separate disclosures a secret from the other spouse. If one of the spouses made such a disclosure privately to the attorney, it’s highly questionable whether that attorney could continue representing both spouses, and may not be able to represent either of them.
If the Two of You Have Widely Diverging Interests
Most husbands and wives don’t have precisely the same legal interests—some of the debts are likely owed by only one of the spouses, and some of the assets may not be jointly owned. But often most legal interests involving creditors are very similar, because most of the debts are jointly owed and most of the assets are jointly owned.
But if the debts are primarily owed by just one of the two of you, or if there is a significant asset or set of assets owned by just one of you, you should seriously consider seeing separate attorneys. That way each of you can get independent advice to do what is best for your individual interests.
Besides getting advice about whether filing bankruptcy is appropriate, and about which kind of bankruptcy would be best, each attorney could give specific advice about whether filing bankruptcy together would be in each person’s best interests.
Timing of Filing Bankruptcy
This could easily be the topic of a full blog post—whether a bankruptcy should be filed before or after a divorce. On the one hand cleaning up the debts before a divorce can simplify the divorce proceeding. But the divorce decree often creates its own debts, so one of the two spouses may benefit from filing a bankruptcy case after the divorce. Because the question of timing may well be different for each spouse, this is another important reason for each person to get separate legal advice.
Filing the Bankruptcy Case
If the advice of the independent attorneys is still consistent—on the type of bankruptcy, on whether the spouses should file together, and on the timing of filing before the divorce—then the two attorneys can also guide you on whether one or the other could ethically represent the two of you together in that bankruptcy case, or whether instead a new attorney should handle the bankruptcy case itself.
This may sound like a lot of attorneys potentially stirring the pot here, and it may not seem practical from a cost perspective. But some of these meetings may come within the attorneys’ free consultation arrangements. In any event, going through these issues less carefully could easily become much more troublesome—such as if an attorney in a joint case would have to withdraw from the case because of a previously undisclosed conflict of interest or secret between the spouses. It’s smarter to do this the right way.