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Bankruptcy and Divorce in Illinois

If you and your spouse are considering both bankruptcy and divorce proceedings in Illinois, it's essential to understand the potential challenges and negative consequences these processes can have on your unique situation. Many factors need to be taken into account, including timing, which can significantly affect the complexity, costs, and outcomes of both legal proceedings. It's vital to approach both processes with careful consideration and the guidance of experienced professionals to ensure the best possible outcome for your financial and personal well-being.

John D. Ioakimidis is a bankruptcy attorney who serves the Chicagoland area. He can provide you with a comprehensive understanding of the benefits and drawbacks of filing for bankruptcy before, during, or after a divorce. As an award-winning attorney, John Ioakimidis will also guide you through how these factors apply to your unique circumstances. While the following information offers a brief summary, please call us at 312-593-1765 to arrange a free consultation and gain a deeper understanding of how bankruptcy and divorce intersect. 

Bankruptcy Before a Divorce in Illinois

Deciding whether to file for bankruptcy before or during divorce proceedings is a complex matter that depends on several factors, such as your location, joint and individual debts and assets, and the type of bankruptcy you plan to pursue. To determine the best course of action for your particular situation, it's crucial to consult with a legal expert. Below are four key considerations to keep in mind when contemplating bankruptcy before divorce.

Factor 1: Chapter 7 versus Chapter 13

If filing bankruptcy before a divorce, Chapter 7 bankruptcy is your best bet.

If you are considering bankruptcy and divorce, it may be better to file for Chapter 7 bankruptcy before the divorce, especially if the split is amicable. In Chapter 7 bankruptcy, a debtor's assets are liquidated, and eligible unsecured debts, such as credit card debt, personal loans, and overdue medical and utility bills, are eliminated. Plus, Chapter 7 bankruptcies can be completed relatively quickly, taking only three to six months. 

However, keep in mind that eligibility for Chapter 7 bankruptcy is "means tested." This means that your combined income must be under a certain amount to qualify. If your combined income exceeds this threshold, then Chapter 13 bankruptcy may be your only option if you want to file for bankruptcy before your divorce.

Chapter 13 bankruptcy allows individuals to enter into a repayment plan with their creditors. Therefore, it is not recommended to file for Chapter 13 bankruptcy before a divorce, as repayment plans can last between three to five years and significantly delay the divorce proceedings.

Factor 2: Fees and Other Costs

Some couples may file for bankruptcy before divorce to reduce costs..

If you and your spouse are considering bankruptcy and divorce, filing a joint bankruptcy petition before the divorce can save you money. By doing this, you can pay one filing fee and share a bankruptcy attorney. The fees and costs for Chapter 7 bankruptcy usually range from $1,000 to $2,500. However, for Chapter 13 bankruptcy, the combined fees and costs are much higher and can reach or exceed $5,000.

In considering bankruptcy before a divorce, evaluate the savings in relation to other factors.

Factor 3: Assets

In a divorce, your assets are divided, which can be a long, bitter process unless you have already had the matter simplified through bankruptcy.

If you are considering a divorce, filing for Chapter 7 bankruptcy may make the process simpler. By eliminating your unsecured debts through bankruptcy, you'll have one less thing to worry about when dividing assets. This can make it easier to determine who owes or will pay any remaining debts during the divorce proceedings.

Filing for Chapter 13 bankruptcy may cause complications. This type of bankruptcy is commonly used by individuals who wish to prevent foreclosure or repossession of their homes or vehicles. It will not be clear whether you can keep these assets until the bankruptcy process is completed, which typically takes three to five years. 

If you file for bankruptcy before divorce, Chapter 7 may be better for asset division than Chapter 13.

Factor 4: Creditors

When a married couple accrues debt, creditors can sue both spouses. Even after a divorce, this can remain true depending on the divorce settlement.

When a married couple accumulates debt, a divorce court judge can order both spouses to be responsible for paying it off. This includes situations where one spouse has a credit card in their name, but the charges benefited both parties. If one spouse fails to make payments and the creditor takes legal action, both spouses can be sued for the debt. 

Filing for Chapter 7 bankruptcy before getting a divorce can discharge joint debts, preventing creditors from pursuing payment through legal means. This means they can't sue you, garnish your wages, or freeze your bank account. However, this option only works if both spouses are willing to cooperate..

Bankruptcy During a Divorce in Illinois

It is recommended to avoid filing for divorce and bankruptcy simultaneously. The overlap of assets involved in both cases can prolong the proceedings, leading to increased stress, time, and expenses. 

If a Chapter 7 or 13 bankruptcy is pending, the court may face restrictions in dividing marital assets during divorce proceedings. Additionally, issues like child support and alimony may further delay the bankruptcy process. 

Even if both cases are filed at the same time, they will likely follow different timelines. In such a scenario, the bankruptcy case will be suspended until the divorce court decides on the division of debt and assets. 

Therefore, attempting to tackle both cases together is not advisable and may not offer any benefits that outweigh the many drawbacks.

Bankruptcy After a Divorce in Illinois

After getting a divorce, starting fresh may seem like a good idea, but the financial side of it can be challenging. In fact, many people find themselves in dire financial straits following a divorce, as their household income is usually cut in half. However, bankruptcy can be a game-changer, providing a new financial beginning when divorce alone cannot. If you're thinking about filing for bankruptcy, there are several factors to consider, such as whether to do so before or after your divorce. Here are a few things to keep in mind.

Factor 1: Costs

After a divorce, you are responsible for paying all bankruptcy-related fees alone. Filing for bankruptcy post-divorce can be more expensive because you will need to pay separate legal and filing fees for your bankruptcy case.

Factor 2: Conflict

When a divorce turns bitter, the other spouse may refuse to cooperate when filing for bankruptcy.

If divorce proceedings are acrimonious, filing for bankruptcy may be a viable option. It can be tough to convince a bitter spouse to cooperate with a bankruptcy case. If you're already divorced, you'll only need to manage your own finances, assets, and debts. This gives you the freedom to make decisions that are most advantageous to you.

Additionally, if you are considering filing for Chapter 13 bankruptcy, which typically takes three to five years to finalize, you may have a higher likelihood of completing the process successfully if you pursue it independently. It is also worth noting that bankruptcy proceedings should not significantly delay your divorce proceedings.

If you are filing for bankruptcy after a divorce and your household income while married exceeds the income limits set by bankruptcy law, Chapter 7 may be a viable option for you. With your separate income, you may qualify for Chapter 7. If you do qualify, any debt you acquired during or after the divorce can be discharged, as long as it is dischargeable debt.

Factor 3: Creditors

Filing for bankruptcy after divorce may not protect you from creditors of joint debts.

It's important to keep in mind that during a divorce proceeding, the judge will decide or approve the allocation of assets and debts. In some cases, both parties may be required to jointly repay a creditor. If this occurs and there are no specific instructions or conditions, you will be solely responsible for the entire debt, regardless of the other party's involvement.

If you, as the party filing for bankruptcy, are able to discharge the debt (if it meets the qualifications), the other party will still be obligated to pay their share. However, if you are not the party filing for bankruptcy, you will need to continue making payments on the debt. The creditor may also pursue you for the other party's portion of the debt.

Contact a Bankruptcy Lawyer in Illinois Today 

Going through a divorce is already difficult, and adding the process of bankruptcy on top of it can make things even more stressful. The timing of both procedures is crucial to their success, particularly for bankruptcy. It's important to take into account all of your options and your unique situation. 

John D. Ioakimidis, an experienced bankruptcy lawyer serving Chicago and the surrounding counties, is available to assist you throughout the process and provide advice. Our goal is to ensure that you have a successful bankruptcy filing. To schedule a free consultation, please fill out our online form or give us a call at 1-312-593-1765.

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I'm committed to helping you get out of debt and starting a new life. If you live in Chicago, Cook County, Lake County, DuPage County, Kane County, McHenry County, or Will County, contact me for a free consultation over the phone, in person, or video call.