Filing for bankruptcy is a tough decision and one that should not be taken hastily. Attorneys are often presented with these two questions, should I file before I get married, or after. Another question to consider is whether to pursue Chapter 7 or Chapter 13 bankruptcy. And these are excellent questions.
Filing Bankruptcy Before Marriage
Chapter 7 Bankruptcy
Chapter 7 is technically called liquidation, but it is not as frightening as it sounds. As the most common chapter filed in America, it accounts for three out of every four cases filed. One benefit of liquidation is that it is fast and efficient. It can take only about six months to “move” through the system from the time of filing to discharge and closure.
Another benefit is that 99% of people who file this chapter do not lose any assets. Liquidation occurs when an asset exceeds the amount that the Code allows you to protect. And most do not exceed those amounts.
One downside is that it is the nuclear option, meaning, it is quite powerful, and it can impact your ability to obtain credit for a few years. It will remain as a listed filing on your credit report for a minimum of 7 years. However, your credit score will improve quickly without any debt dragging it down.
A pro to filing before marriage is that you may be able to qualify, income-wise, only before you marry, if your prospective spouse has a high income and combined with yours would put you outside the income limit to file under chapter 7.
But a downside is if you plan to try and buy a house after you file, and then get married, you will probably not find any bank to loan you money for a couple of years. As an unofficial rule of thumb, most banks want to see you and your credit a couple of years removed from your discharge to see if you have a good post-filing “track record”, so this is a drawback.
Chapter 13 Bankruptcy
A Chapter 13 is called Adjustment of Debts of an Individual with Regular Income, or unofficially, personal reorganization. Chapter 13 is a repayment plan that lasts from 36 to 60 months. In a 13 you can keep all your property, and even reduce car payments or other secured debt. In addition, you may be able to pay only pennies on the dollar for unsecured debt.
It is an excellent alternative for those folks who cannot qualify for a chapter 7. A chapter 13 is very malleable. This means that there are a lot of different ways you can set up a plan, and address your debt.
One of the major drawbacks of a 13 is the time and commitment. If your in for a long engagement, then you may be the right fit for a 13. There can be many pitfalls along the way over a 60 month period. It can include loss of work, illness, a new mouth to feed, and many other imaginable things that can happen. Success will depend largely on your commitment and allow your attorney to do her job.
Choosing which chapter is right for you before you get married is based on many factors. You should discuss in full with your attorney and your soon-to-be spouse.
Filing Bankruptcy After Marriage
Chapter 7 Bankruptcy
The decision to file after marriage may also not be a bad idea. There may be reasons to wait until after the marriage to file.
A chapter 7, if filed jointly can give you both a fresh start. At the same time, it can allow you to start that next chapter in your life. If you are young, then time is on your side and your credit score will improve tremendously over time. In a few years down the road, you may be able to get credit again for your growing family. Often times, a young couple is able to still qualify for a chapter 7 because they are at the beginning of their careers and their earnings are still low.
One disadvantage is if you both file, and you need to obtain credit for a large purchase, the both of you will be in a higher interest rate category. This can impact your monthly budget.
Chapter 13 Bankruptcy
A joint chapter 13 can also address the needs of all your creditors in one convenient monthly payment. It can give you a chance to plan and forge a new budget together as a unit.
In the end, choosing to file before or after marriage, and which chapter will depend on the factors above and your unique situation. There are benefits and drawbacks to both.
Which Should You Choose?
The choice of whether to file bankruptcy should ultimately be your decision and your decision only. Hopefully, the contents of this article can help you understand your options. If you’d like to estimate bankruptcy qualification and cost, you can also do so with our Chapter 7 calculator.