Determining what course to take first when a couple decides to divorce in the Milwaukee area is often difficult under the best of circumstances. A divorce scenario becomes even more muddied when financial problems such as foreclosure and bankruptcy loom on the horizon. In most cases when at least one spouse intends to file for bankruptcy in addition to filing for divorce, attorneys will recommend that the bankruptcy filing occur before divorce proceedings are initiated. This becomes even more important when the divorcing couple’s home is expected to go into foreclosure. Filing for bankruptcy before divorce proceedings begin will eliminate clients from a myriad of financial obligations and streamline the divorce process.
In a scenario where a foreclosure looms, if bankruptcy is filed first, the spouse requesting debt relief will not be responsible for any missed mortgage payments following the filing. Wisconsin has an anti-deficiency statute, meaning that the former homeowners will not be responsible for the difference on the amount owed on a foreclosed home and the amount the property is sold for at auction. The law is complicated, however, and should be explained by a competent attorney.
Another scenario that affects the finances of a divorcing couple is the short sale of a home, where the property is sold for less than its worth. Short sales protect the credit of both ex-spouses but require the cooperation of both in order for the sale to occur.
Filing for bankruptcy before divorce is essential because it will also release the spouse petitioning for debt relief from responsibility on credit cards and other unsecured debt. Once the financial picture has settled, a competent family law firm may be able to guide clients through other divorce issues such as division of property and assets that otherwise would be in limbo because of muddied financial conditions.
Source: Fox Business, “Which Should I File First: Divorce or Bankruptcy?“, Justin Harelik, July 10, 2013
