Sometimes bankruptcy can be an unfortunate result of divorce of vice versa. Divorce is commonly cited as the leading cause for bankruptcy. If you find yourself in this situation, here are some important things you should know:

  1. In Arkansas, a married person can file for bankruptcy by themselves, but the spouse will still be liable for any joint debts. Therefore, if you are going through a divorce and you find out your spouse is filing bankruptcy; you will need to make sure of which debts you are jointly responsible for. The fact that one spouse discharged the debt, does not mean the other is discharge and may show on the other spouse’s credit report. 
  1. It is not recommend filing for divorce and bankruptcy at the same time. Which one is filed first depends on the situation. In most situations, if the divorcing couple is amicable, it is best to file for bankruptcy first. This allows both parties to share the costs of the attorney and filing fees and could help protect you from paying joint debt. 

Additionally, married couples filing jointly in Arkansas are allowed to each claim a full set of exemptions, unless otherwise specified. Thus, double exemptions for property. For example, Arkansas allows an exemption for tools of trade such as implements, books, etc. up to $750; a married couple can claim a total of $1,500. For more information about Arkansas bankruptcy exemptions and which federal exemptions can be filed contact Kevin Hickey Law Partners for a detailed list and consultation. 

Filing for bankruptcy first simplifies the division of assets in divorce, because the bankruptcy process typically divides them. 

  1. There are two types of bankruptcy
  2. Chapter 7 – A liquidation bankruptcy that gets rid of your unsecured debts such as credit card debt and medical bills. The discharge usually only takes a few months; therefore, it can be completed quickly before a divorce.

Filing for Chapter 7 bankruptcy requires you to pass the Chapter 7 means test, which determines whether your income is too high. This helps eliminate high wage earners from filing for Chapter 7. 

To perform the means test, you will first need to determine whether your income is more or less than the median income in your state. Arkansas’ median income is $37,081 for a one-member household; $46,495 for a two-member household; $50,755 for a three-member household; $58,333 for a four-member household and continues to increase the more household members there are.

To calculate your income, average your monthly income over the last six calendar months. Then you need to multiply your average monthly income by 12.

If your income is over the median income for your household size, then you can calculate based on your income and expenses. Expenses that can be deducted are obligations you are legally required to pay and expenses necessary for health and welfare.

If after deducting the allowed expenses from your income, your monthly income over the next 60 months is less than $7,475 then you pass the Chapter 7 means test. If your disposable income is between $7,475 and $12,475, then you must further calculate to determine if you have the Chapter 7 filing option. If over $12,475 you do not qualify.

  1. Chapter 13 – You are required to pay back some or all of your debts through a repayment plan. This type of bankruptcy typically takes three to five years to complete, so you may be better off to file after the divorce. 

If you have already filed for Chapter 13 and are under a repayment plan and you decide to file for divorce during the repayment period, you can choose to cancel or restructure the bankruptcy plan. If you cancel, you agree to stop the agreed upon payment plan, but all debt you and your spouse have assumed will be your responsibility. Restructuring the plan divides it into two cases: one for you and one for your spouse. This allows you to handle eth bankruptcy separately.

 Bankruptcy and divorce can be quite complex. You and your spouse will each need your own attorneys. Even if you chose a divorce attorney together, he or she can no longer represent you because attorneys are barred from representing clients that have a conflict of interest with each other. The bankruptcy creates a conflict for the attorney because the clients are now opponents in another legal matter.

 Contact Kevin Hickey Law Partners for more details regarding your divorce and financial situation. Every case is unique, let our expertise and experience work for you.

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(479) 434-2414 Fort Smith • (479) 802-6560 NWA

In the River Valley:
502 Garrison Avenue
Fort Smith, AR 72901
Phone: (479) 434-2414
Fax: (479) 434-2415

In Northwest Arkansas:
1750 S. Osage Springs Drive, Suite 210
Rogerse, AR 72758
Phone: (479) 802-6560
Fax: (479) 802-6561

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