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For people who are facing serious financial issues while still married, confronting a divorce can result to a forseeable bankruptcy. In such cases where bankruptcy seems imminent and you have more debt than assets to divide between you, it may make more financial sense to file for bankruptcy prior to starting divorce proceedings.
Doing this can mean that you're clearing out the debts that you can clear out so that dividing the remaining debts will be easier during the divorce. If you File for joint bankruptcy, it would also lower the costs than if you filed bankruptcy separately after the divorce.
When you file bankruptcy with your spouse, all community property goes to the bankruptcy estate during divorce and becomes available to pay the debts. Filing bankruptcy, however, grants an automatic stay which prevents creditors from automatically collecting on all debts. The bankruptcy court then decides which properties/assets are exempt from being liquidated to pay the debts owed. Once the bankruptcy court decides on which items are exempted from liquidation (those properties), divorce court can then divide the remaining properties between you and your spouse.
Should you want to be protected from paying the debts you feel you shouldn't be paying in the event that your soon-to-be ex spouse hints at wanting to file bankruptcy, it's best to have an indemnity clause written into the divorce decree. This means that you will be "held harmless" and that your spouse should pay certain debts specified with the clause. Either this or have your spouse pay you if you paid the debt for him/her. While an indemnity clause will not assure that you'll get paid back what you paid towards the debts of your spouse, it's certainly going to be taken into consideration by the bankruptcy judge.
Keep in mind though that filing bankruptcy does not automatically prevent one spouse from asking the court to impose alimony or child support to the other spouse. For more information and for a free evaluation we recommend visiting Clear Bankruptcy.
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