Family law attorneys are often the first professionals who get an insider’s view into their client’s financial health and debt to income ratio. They might be the first professionals who deeply understand a client’s financial situation. In situations like divorce, where communication often breaks down, either one or both spouses may not always be fully aware of the seriousness of the situation. To divide marital property in divorce, family lawyers will evaluate a couple’s debts, assets, and income, and will often be the first to identify signs that a couple might be headed for bankruptcy. Because of this, family lawyers might be a client’s first referral to a bankruptcy lawyer.
Family lawyers can work with bankruptcy attorneys to help their clients draft divorce settlements that either prepare them for bankruptcy after divorce or refer their family law clients to bankruptcy lawyers so they can file together as a couple before divorce.
Family lawyers can also help protect their clients from the weaponization of bankruptcy after divorce. For example, if one partner files for Chapter 13 bankruptcy after a divorce is finalized, this could leave the other partner on the hook for any remaining shared marital debts that aren’t characterized as spousal support or child support. Family lawyers can consult with local Washington state bankruptcy attorneys to ensure that the language of the decree protects both spouses if one or both parties later files for Chapter 13 bankruptcy, or if one or both parties gets into financial trouble down the line.
Individuals in Washington state lead the nation in terms of consumer debt. According to Experian, the average consumer debt in Washington state was $150,000 in 2024. Mortgage debt makes up a significant proportion of this debt, but student loan debt, auto loan debts, and credit card debts also make up a significant proportion of consumer debt in Washington state.
For all its complexities, clients often see divorce as offering the promise of a clean slate, the ability to clear away the past and start over. Yet, for couples carrying significant debt, starting over might feel downright impossible, especially if a divorcing couple does the math and realizes that they won’t be able to divide their single household into two households and pay their debts.
Couples who may have been unwilling to file for bankruptcy before they considered divorce, may find bankruptcy to be a more attractive option as they come to terms with the financial realities of splitting one household (and its debts) into two. Individuals seeking a fresh start after divorce, might likewise find the clean slate of bankruptcy similarly attractive.
When bankruptcy lawyers work together with family lawyers, they can often help their clients secure better outcomes than when both legal professionals work apart.
Here’s how:
- Signs that Divorcing Couples Might Need Referral to a Bankruptcy Attorney
- Common Bankruptcies: Chapter 7 and Chapter 13 Bankruptcy
- Filing for Bankruptcy Jointly Before Divorce, or Separately After?
- Protecting Against Creditor Claims After the Divorce is Finalized
- The Risk of Chapter 13 After Divorce
- Collaborative Divorce
Signs that Divorcing Couples Might Need Referral to a Bankruptcy Attorney
Family lawyers don’t provide bankruptcy advice but can often identify signs that a client or couple might benefit from bankruptcy either before or after their divorce. When a family lawyer catches these signs, they can make a referral to a bankruptcy attorney early in the divorce process. What are some signs that a divorcing couple might need a bankruptcy attorney?
Here are a few:
- High Debt to Income Ratio
- High Medical Debt
- Recent Job Loss
- Recent Major Expenses or Expenditures (whether anticipated or unanticipated; think damage to a family home not covered by insurance or a couple spending money on a vacation they can’t afford to try to save their marriage)
- Divorce (can the couple afford to pay their marital debts and maintain two homes after divorce?)
Family lawyers who see these signs are wise to refer clients to bankruptcy lawyers for several reasons.
In a contested divorce, there’s always the risk that the other party might file for bankruptcy before the divorce is finalized, essentially stalling the divorce until the bankruptcy is finalized, and potentially leaving the other spouse on the hook for all the remaining marital debts.
If marital debts will be divided in the divorce decree, each party might want to have the decree reviewed by a bankruptcy attorney before finalizing. A bankruptcy attorney can help each party understand what might happen if the other party were to file for bankruptcy after divorce and protect both parties from the potential use of Chapter 13 bankruptcy to avoid paying shared marital debt.
If both parties are amicable or willing to pursue collaborative divorce, sending clients to a bankruptcy lawyer before divorce could potentially help the couple clear away marital debt, possibly allowing for a more simplified divorce process.
Common Bankruptcies: Chapter 7 and Chapter 13 Bankruptcy
The most common types of personal bankruptcy proceedings are Chapter 7 bankruptcies and Chapter 13 bankruptcies.
Chapter 7 bankruptcy, also known as a liquidation bankruptcy, allows for the complete discharge of all qualifying debts (most student loans debts, recent income tax debts, child support debts, alimony, any debts the person is responsible for paying under a divorce decree, and other types of secured debts typically cannot be discharged in Chapter 7 bankruptcy). With Chapter 7 bankruptcy all non-exempt property is sold to pay creditors, and any remaining qualifying debts are discharged. Exemptions allow individuals and couples to protect various assets.
A bankruptcy lawyer can help clients maximize their exemptions during the Chapter 7 bankruptcy process, and often when couples file for Chapter 7 bankruptcy together, they might have higher exemption limits, allowing them to protect more property than had they filed for Chapter 7 apart, or after divorce.
A Chapter 13 bankruptcy allows a couple to restructure debts and keep certain secured property after the bankruptcy. If a couple wants to keep a mortgaged home or vehicle, for example, of if a couple’s income exceeds the means test for Chapter 7 bankruptcy, Chapter 13 bankruptcy might be the better choice. Secured debts like a mortgage, or car loan, might be restructured under a 3-to-5-year repayment plan under a Chapter 13 bankruptcy.
Individuals or couples must meet strict income limits to qualify for Chapter 7 bankruptcy. This is known as the means test. A bankruptcy lawyer can help clients determine whether they qualify for Chapter 7 bankruptcy or whether they must file for Chapter 13. The bankruptcy attorney can also work with the client’s family lawyer to get an idea of what each client’s financial picture might look like after divorce to help the couple determine whether the proposed repayment plan under Chapter 13 is feasible.
When a couple files for bankruptcy together before divorce, the couple will need to provide their bankruptcy lawyer with two years’ worth of financial statements and income. The family lawyer may have already done much of this work in helping the couple divide assets and debts, and can provide this information to the bankruptcy attorney, helping to streamline the process if the couple chooses to file for bankruptcy before divorce. In a collaborative divorce for example, when bankruptcy attorneys work together with family lawyers, they can save themselves and their clients time by sharing information.
With Chapter 13 bankruptcy, some secured debts like a mortgage or car loan aren’t discharged in the bankruptcy. Instead, the courts set up a repayment plan that lasts anywhere from 3 to 5 years, and the secured property, like the home or car, doesn’t get repossessed or foreclosed upon. After the 3 to 5 years, any remaining debts are discharged. It is possible to file for Chapter 13 bankruptcy before filing for divorce, but the process is more complicated because the divorce settlement must account for the repayment plan. If either party fails to honor the repayment plan, the secured property can be repossessed or foreclosed upon, so this kind of bankruptcy requires a commitment of both parties to ongoing collaboration and cooperation.
Filing for Bankruptcy Jointly Before Divorce, or Separately After?
When a couple considers bankruptcy in the context of divorce, they’ll need to work with their bankruptcy lawyer to determine whether they should file for bankruptcy as a couple before their divorce is finalized, or file for bankruptcy separately after the divorce is finalized.
Filing for Chapter 7 bankruptcy as a couple before the divorce is finalized has the benefit of clearing most of the couple’s debts, making division of property and any remaining debts more straightforward. Yet, to file for Chapter 7 bankruptcy before divorce, the couple would need to be willing to work together and be willing to accept and sign off on all financial disclosures.
From a purely procedural standpoint, filing for bankruptcy before divorce will delay divorce proceedings because bankruptcy will put a stay on the division of marital property. Couples won’t be able to file for divorce or finalize their divorce until after the bankruptcy is complete. If the bankruptcy is straightforward, this could delay finalizing the divorce by a few months, but if the bankruptcy is more complex, this could extend the divorce timeline.
There are additional benefits to filing jointly for Chapter 7 bankruptcy if a couple qualifies. For one, rather than paying for two separate bankruptcy proceedings, the couple can potentially save money on legal and filing fees by filing together. In some situations, one party might only be able to pass the means test by filing with their spouse. In other cases, by filing together, a couple might be able to protect more assets through exemptions. Additionally, recent clarifications of Washington state bankruptcy law allow each person in a marriage filing for bankruptcy to take his or her own exemptions to protect community property and assets from liquidation.
Working together to file for bankruptcy might make sense especially if it frees up money for child support, alimony, or other mutually beneficial purposes.
Married individuals can also file for bankruptcy separately from their spouse before the divorce is finalized. These bankruptcies can end up in a more contentious divorce, because debt collectors may still try to pursue collections from the other spouse. Family lawyers can work with bankruptcy lawyers in these situations to help their client navigate bankruptcy in the context of contested divorce, especially if the bankruptcy leaves one party “on the hook” for significant marital debt. Yet, there might be circumstances where one partner might file for bankruptcy on their own in an amicable or collaborative divorce to discharge separate debt so that they are more able to pay alimony or child support.
Bankruptcy after divorce could allow a couple to divorce more quickly but may not always be the best financial decision in all cases. Yet sometimes a couple might not qualify for Chapter 7 bankruptcy together because their shared incomes don’t pass the means test, but after divorce, with the reduced household size and only their individual income under consideration, one or both spouses may qualify for Chapter 7 bankruptcy.
The decision to file for bankruptcy before divorce or after divorce is not trivial. Family lawyers can refer clients to a bankruptcy attorney before major decisions are made.
Couples will also need to consider other factors before proceeding with a bankruptcy. A joint bankruptcy before divorce will affect both spouse’s credit scores. This can impact each partner’s ability to secure independent credit and apply for separate rental housing after divorce, both of which may be required to establish separate households. A divorce lawyer working together with a bankruptcy lawyer can help the couple understand how pursuing a bankruptcy before divorce could impact each person’s goals and access to financial resources after divorce.
Protecting Against Creditor Claims After the Divorce is Finalized
A divorce settlement can assign debts to specific parties, but ultimately, the promissory note or contract each party had with the debt collector will dictate whether a debt can be collected. Issues can arise if a divorce settlement assigns debt to one party in divorce, but the other party’s name remains on the promissory note.
Sometimes, after a meeting with the divorce lawyer and bankruptcy lawyer, the couple might decide that bankruptcy isn’t required if debts are carefully divided or refinanced during divorce. For example, the higher earning spouse may choose to refinance the marital debt in their name, or pay off the shared secured marital debts to protect their credit score, or they may do this in lieu of alimony.
Again, working with a family lawyer, and financial planner is crucial to ensure that any remaining shared debts are properly restructured, or refinanced before the divorce is finalized, or that the divorce decree includes language that protects both parties from bankruptcy or issues of non-payment.
The Risk of Chapter 13 After Divorce
Chapter 13 bankruptcy, unlike Chapter 7 bankruptcy, allows a person to discharge any marital debts in a divorce settlement agreement. If one spouse files for Chapter 13 bankruptcy after the divorce decree has been finalized, this could potentially leave the non-filing spouse on the hook for marital debts, even if the divorce agreement stated otherwise.
Because creditors didn’t sign off on your divorce agreement, they don’t have to honor your divorce decree. They can still go after you for debts that are legally in your name. Divorce lawyers who work with bankruptcy lawyers are aware of this risk, and either advise their clients about these risks, or else encourage clients to refinance or pay off shared debts before divorce. Another way divorce attorneys can protect their clients when refinancing or paying off debts isn’t possible is by classifying the payment of debts as spousal support. One of the exemptions to discharge provided under U.S. Bankruptcy law (11 U.S. Code § 523) are any debts “owed to a spouse in the nature of alimony, maintenance, or support.”
Here, the language used in the divorce decree is very important, and having a lawyer who works with bankruptcy attorneys who is also aware of the risks is essential.
Collaborative Divorce
Couples who are considering filing for bankruptcy and who are also going through a divorce face unique legal challenges that a bankruptcy attorney, along with a family law attorney, can help them navigate. When a couple is willing to work together to file for bankruptcy before divorce, the couple might be a good candidate for collaborative divorce. With collaborative divorce, couples agree to negotiate their divorce settlement outside of court, with the help of their divorce attorneys and their larger collaborative divorce team.
The collaborative divorce team typically consists of all the professionals the couple hires to support them as they navigate their amicable divorce outside of court, which can include each spouse’s collaborative divorce attorney, their financial advisor, a family counselor or therapist, and, in some cases, a bankruptcy lawyer.
Collaborative divorce isn’t just for low-conflict divorce. Couples sometimes enter the collaborative divorce with high conflict but want to pursue divorce out of court for privacy reasons, or they have the goal to divorce amicably to protect their children. They choose the collaborative divorce process because collaborative divorce lawyers use the tools of negotiation and peaceful conflict resolution. These same tools can prepare a couple for the cooperation they’ll need to have if they choose to file for bankruptcy together.
Collaborative family lawyers understand the unique dynamics that play out in divorce conflict and negotiations, and they also understand the unique challenges that couples will need to navigate when dividing assets and debts post-divorce. Family lawyers can work with bankruptcy attorneys to help the couple navigate their bankruptcy and divorce to achieve the best possible outcome.
Couples considering divorce face the difficult task of distinguishing between separate and community debts, that is, distinguishing between debts acquired before the marriage and debts acquired during the marriage. A family law attorney can help a couple distinguish between marital debts and separate debts. For example, should student loan debt acquired by one partner during the marriage be considered a shared debt or a separate one? Should credit card debt one spouse ran sky high during the marriage be a shared debt, or a separate one?
Washington family laws offer guidance, but a family law attorney, along with a bankruptcy lawyer, in the context of collaborative divorce, can help couples find specific or even creative solutions that work for their unique situation.
The Washington state collaborative divorce lawyers at Truce Law work with bankruptcy lawyers and other professionals to help clients reach amicable divorce settlements. If you are a bankruptcy lawyer interested in connecting, please don’t hesitate to reach out.
This article is for educational purposes only and does not constitute legal advice. Every situation is unique. For guidance specific to your circumstances, consult a licensed family law attorney in your area.