What Happens If My Spouse and I Get a Divorce During Chapter 13 Bankruptcy?
Updated on 08 October 2024
For many debtors, Chapter 13 bankruptcy is truly the most effective way to find lasting debt relief. But in the three to five years it takes to work your way through a Chapter 13
repayment plan, your financial situation may change, whether you get married, switch jobs or - as many folks unfortunately do - go through a divorce.
If you filed for Chapter 13 with a spouse, a divorce will obviously shake things up. But it doesn’t have to derail
your debt relief plan. With over half of marriages ending in divorce, experienced bankruptcy attorneys have helped guide many divorcing spouses through their bankruptcy cases. If you’re
ending a marriage during your bankruptcy, you have several options to obtain your bankruptcy discharge.
Consult with Your Attorney
First and foremost, talk to your bankruptcy attorney. He or she will help you determine the best solution for your particular situation. Because representing both you and your now-ex
can present a conflict of interest, your attorney will also determine whether withdrawing and recommending another lawyer is the right choice.
Option 1: Keep Making Payments
Just because you are getting divorced doesn’t mean you have to change your payment plan. If you can afford to continue making regular payments, by all means, you should continue to do
so. Unfortunately, you may find that you and your ex disagree on how to divvy up payments. Additionally, the new financial strain of supporting two separate households can make it
increasingly difficult to afford your current payment plan.
Option 2: Convert to Chapter 7
Did you file for Chapter 13 bankruptcy because you originally earned too much disposable income to qualify for Chapter 7? Your new financial situation may make you eligible for a Chapter
7 bankruptcy plan. Unlike Chapter 13, Chapter 7 bankruptcy offers the ability to discharge most unsecured debts entirely, often in just a few months. However, Chapter 7 isn’t the best
choice for everyone. If you filed for bankruptcy because you wanted to stop foreclosure or protect your car from repossession, it may be safer to stick with Chapter 13.
Option 3: Modify Your Plan
If you are unable or unwilling to convert your plan to a Chapter 7, it may still be possible
to complete your Chapter 13 bankruptcy by lowering your repayments. In certain cases such as divorce, filing a motion with the bankruptcy court can reduce Chapter 13 plan payments.
Option 4: Separate Your Bankruptcy
One more option is to petition the bankruptcy court to separate – or “bifurcate” – your bankruptcy plan. Bifurcation creates separate bankruptcy plans for you and your ex-spouse,
allowing you each to decide how to proceed with your bankruptcy.
Divorce isn’t pleasant, but it’s a fact of life – and it doesn’t have to cost you your bankruptcy case. Because divorce leads to financial hardship in many cases (at least in the short term)
the protective benefits of bankruptcy can become even more valuable during this time.
If you’re considering a divorce during bankruptcy – or are considering filing for bankruptcy during a divorce – take the time to schedule an appointment with a knowledgeable bankruptcy attorney.
At DebtStoppers, our bankruptcy lawyers are experts at identifying the most advantageous debt relief strategy for you and your family,
no matter what your circumstances.
Option 5: Reassess Your Financial Situation
Going through a divorce can significantly impact your financial situation. It’s important to reassess your income, expenses, and debt to determine if your current Chapter 13 plan is still feasible. You may find that you need to make adjustments to your plan, such as reducing expenses or increasing income, in order to stay on track.
In addition, you may need to consider how your assets and liabilities will be divided in the divorce settlement. If you have joint debts with your ex-spouse, you may need to work with your attorney to determine how those debts will be paid off or discharged in bankruptcy.
Option 6: Consider Mediation
Divorce mediation can be a helpful tool for divorcing spouses who are struggling to reach an agreement on financial matters. A mediator can work with both parties to help them find common ground and come up with a plan for how to handle the bankruptcy case.
Mediation can also help to minimize conflict and avoid the need for expensive court battles. If you and your ex-spouse are willing to work together, mediation may be a good option to consider.
Option 7: Stay Organized
Divorce, divorce credit card debt and bankruptcy are both complex legal processes that require careful attention to detail. It’s important to stay organized and keep track of all paperwork and communications related to both cases.
Make sure to communicate regularly with your bankruptcy attorney and keep them informed of any changes to your financial situation. Keeping accurate records and staying on top of deadlines can help to ensure that your bankruptcy case stays on track, even in the midst of a divorce.
In conclusion, a divorce during Chapter 13 bankruptcy can be a challenging situation to navigate. However, with the help of an experienced bankruptcy attorney and careful consideration of your options, you can still obtain debt relief and move forward with your life.
Additional Information About Divorce During Chapter 13 Bankruptcy
If you and your spouse are going through a divorce while you are in the middle of Chapter 13 bankruptcy, there are several options available to you. Here are some additional pieces of information to consider:
Impact on Bankruptcy Discharge
The finalization of your divorce during Chapter 13 bankruptcy may impact your bankruptcy discharge. In most cases, you will still be able to receive your bankruptcy discharge, but there are some situations where the divorce settlement may affect the bankruptcy plan. For example, if your divorce settlement includes payments to your ex-spouse, this may impact your disposable income and affect your ability to pay your creditors.
Joint Debts
If you and your spouse have joint debts, you will need to work with your attorney to determine how those debts will be paid off or discharged in bankruptcy. In some cases, the court may order your ex-spouse to pay their share of the debt, but this can be difficult to enforce. It may be necessary to consider negotiating with your ex-spouse or filing a separate lawsuit to collect the debt.
Property Division
During a divorce, assets and liabilities are divided between the two parties. If you have assets that are part of your bankruptcy estate, such as a tax refund or personal injury settlement, this may need to be considered in the divorce settlement. You will need to work with your attorney to determine how these assets will be distributed.
Changes to Income and Expenses
A divorce can have a significant impact on your financial situation. You may experience changes to your income, expenses, and debt load. It is important to reassess your financial situation and determine if your current Chapter 13 plan is still feasible. You may need to make adjustments to your plan, such as reducing expenses or increasing income, to stay on track.
Seeking Mediation
If you and your ex-spouse are struggling to reach an agreement on financial matters, mediation may be a good option to consider. A mediator can work with both parties to help them find common ground and come up with a plan for how to handle the bankruptcy case. Mediation can also help to minimize conflict and avoid the need for expensive court battles.
Communication with Your Attorney
During a divorce and bankruptcy, it is essential to communicate regularly with your attorney and keep them informed of any changes to your financial situation. Your attorney can help you navigate the legal process and make informed decisions about your debt relief strategy. Keeping accurate records and staying on top of deadlines can help to ensure that your bankruptcy case stays on track, even in the midst of a divorce.
In conclusion, a divorce during Chapter 13 bankruptcy can be a complex and challenging situation to navigate. However, with the help of an experienced bankruptcy attorney and careful consideration of your options, you can still obtain debt relief and move forward with your life.
Post-Divorce Considerations
Even after a divorce, you and your ex-spouse will need to communicate and coordinate regarding the bankruptcy case, especially if it remains joint or if there are shared debts. Both parties will still be affected by changes in the plan, creditor actions, or payments made during the bankruptcy period.
It’s crucial that the divorce settlement clearly outlines how debts included in the Chapter 13 plan will be divided between the spouses. This includes any payments that remain after the discharge or after the bankruptcy case concludes.
While bankruptcy offers relief from overwhelming debt, going through a divorce while in bankruptcy can further delay financial recovery. Once the bankruptcy is completed and the divorce is finalized, both spouses should take steps to rebuild credit, manage debt, plan for future expenses, and improve their financial future.
Reevaluating Your Financial Plan
Reevaluating your financial plan after going through a divorce during Chapter 13 bankruptcy is crucial to ensure you stay on track with your repayment obligations and prepare for your financial future. Divorce typically results in significant changes to income, expenses, and debt responsibilities, which can affect your Chapter 13 plan and your overall financial health.
The first step after a divorce is to assess your new financial reality, which includes understanding your income, expenses, and debt responsibilities. Divorce often leads to changes in all three.
After the divorce, your household income may decrease if you were relying on both incomes to meet expenses. If you are responsible for support payments, ensure you budget for these payments, as they are legally enforceable and cannot be discharged in bankruptcy.
After a divorce, you may have higher living expenses as you transition to a one-person household. Rent, utilities, insurance, and other daily expenses may increase without the shared financial contributions of a spouse. Consider any ongoing legal costs related to the divorce, such as lawyer fees or settlement payments, and how they fit into your financial plan.
During divorce, joint debts may have been divided. Even though the divorce decree assigns debts to each spouse, both parties are typically still legally liable to creditors for any unpaid balances. You need to clarify which debts you are responsible for in the Chapter 13 plan. If you were paying for secured debts (like a car or home) together, determine if you can still afford to keep these assets. You may need to reassess whether maintaining these payments is feasible or if selling the asset is a better option.
Given the significant changes in your financial circumstances due to divorce, you may need to request a modification to your Chapter 13 bankruptcy repayment plan. You may modify the plan if your income has decreased, expenses have changed, or debt has been reassigned. To modify your plan, work with your bankruptcy attorney to petition the court for a modification.
In the wake of divorce, reevaluating how you handle your assets and debts is essential for a stable financial future. Additionally, budgeting is critical to ensure you can manage your expenses while continuing to meet your Chapter 13 repayment obligations.
Even though Chapter 13 bankruptcy remains on your credit report for seven years, you can still take steps to protect and rebuild your credit post-divorce.
Dividing Assets and Debts
Dividing assets during a divorce while going through Chapter 13 bankruptcy presents unique challenges, as the bankruptcy court also has control over certain assets and debts. Simply put, the division of assets must be handled carefully to comply with both divorce law and bankruptcy law
First, it’s important to understand the role of the bankruptcy trustee. The trustee’s role is to ensure that creditors are being paid according to the plan, which means they may have a say in how assets are divided during the divorce. Before dividing assets, it's important to recognize which assets are part of the Chapter 13 repayment plan and how they affect the plan’s success. The trustee must ensure that the repayment plan continues, which could impact how you and your spouse divide certain property.
As in any divorce, you need to distinguish between marital assets and non-marital assets before dividing property. Marital assets are assets acquired during the marriage and are typically subject to division in the divorce. Common marital assets include the family home, cars, bank accounts, retirement accounts, and jointly owned property. Non-marital assets are assets that one spouse acquired before the marriage or via inheritance or gifts are usually considered non-marital and remain with the original owner. However, if marital funds were used to improve or maintain these assets, they could become subject to division.
Likewise, it’s important to distinguish secured vs unsecured debts and assets. Secured debts include mortgages or car loans. Deciding who gets these assets must take into account the ability to maintain the payments and whether the bankruptcy plan allows for any changes.
If you and your spouse own a home, you must decide whether one spouse will keep the home or if it will be sold. Selling the home may require approval from the bankruptcy court and will affect your ability to maintain payments under the Chapter 13 plan. Similar to real estate, if you share a car loan, the asset division must account for whether either spouse can continue making payments or whether the vehicle will be sold or surrendered.
Chapter 13 addresses unsecured debts like credit cards and medical bills. Since these are included in the repayment plan, you and your spouse will need to negotiate who is responsible for paying any remaining balance after the bankruptcy is discharged. Divorce court orders related to unsecured debts may be overridden by the bankruptcy process.
Under bankruptcy law, certain property may be considered exempt, meaning you can keep it, while non-exempt property may be used to pay creditors.
When dividing debt during divorce, remember that creditors are not bound by the divorce decree. Even if the court assigns responsibility for a debt to one spouse, creditors may still pursue both parties for joint debts, especially if they were included in the Chapter 13 repayment plan.
Both spouses are still legally responsible for joint debts included in the bankruptcy, even if the divorce decree assigns them to one spouse. If your ex-spouse fails to make payments, it could affect your bankruptcy case. Your divorce agreement may include an indemnification clause, stating that the spouse responsible for certain debts will compensate the other spouse if they default on payments. While this can provide some protection, enforcement of such clauses depends on state law and post-divorce legal actions.
Both bankruptcy and divorce are complex legal matters, and their intersection requires careful planning and coordination between your bankruptcy attorney and your divorce attorney. Make sure both your bankruptcy attorney and your divorce attorney are aware of the proceedings in both courts. They should work together to ensure that the asset division complies with both bankruptcy law and their divorce settlement.
