Divorce During a Chapter 13 Reorganization Plan

What happens when a couple is in the middle of a Chapter 13 Bankruptcy but they separate and/or get a divorce?  Filing a divorce during a Chapter 13 bankruptcy can add many layers of complexity to the bankruptcy case but a skilled and experienced attorney can cut to the chase and salvage your debt relief plan.

First, let’s frame the issues that arise.  When a married couple files a Chapter 13 bankruptcy, a monthly budget is set based on their joint income and expenses.  A Chapter 13 plan will last 36 to 60 months so it is not unusual to see couples who have decided to divorce during that time frame.  If a divorce occurs, and suddenly there are two households with two separate sets of expenses, there often is not enough money left to make the Chapter 13 plan payment to the bankruptcy trustee.  Upon separation, arguments may ensue about who is responsible for the plan payment.  Usually, this is a moot point — there is simply not enough money in the budget to pay the Chapter 13 payment after separation or divorce.

When our law firm is faced with clients who are divorcing during Chapter 13 Bankruptcy, the first thing we do is determine whether or not they can cooperate for their own benefit and reach a mutually agreement resolution.  In the majority of cases, the most desirable course of action when a divorce occurs during Chapter 13 bankruptcy is to convert the Chapter 13 into a Chapter 7 case.  This is usually possible because with two households, the debtors’ budget now qualifies them to file Chapter 7 even though they didn’t qualify before.

A less desirable alternative is to stay in the Chapter 13 during and after the divorce but modify the plan so that the plan payment is lower and affordable.  In higher income Chapter 13 cases, this is sometimes necessary.  It might also be necessary in order to save a home that was in foreclosure before the case was filed.  Responsibility for the lower plan payment can be assigned proportionally in divorce settlement documents.

The least desirable alternative is to bifurcate (separate) the Chapter 13 into two separate cases.  This can be done when the animosity between the divorcing debtors is such that they cannot cooperate.  Usually, due to a conflict of interest, they will have to go get their own separate attorneys to handle this bifurcation.  If you are in this situation and need an attorney to salvage your Chapter 13 case or file a Chapter 7 for you instead, contact us 24/7 for help.   

Filing Chapter 13 to Stop Contempt of Court

You can fix divorce issues like back child support, maintenance/alimony problems, debt division problems, and other marital issues by choosing Chapter 7 bankruptcy over a Chapter 13 bankruptcy.  Filing Chapter 7 bankruptcy when you have certain problems with your former spouse is usually a recipe for disater.  We frequently meet with clients who started their case in Chapter 7 with a bargain-basement attorney and lived to regret it. Even if that has happened to you, we can probably fix it if you haven’t waited too long.  For more information on how to resolve your divorce problems with a Chapter 13 bankruptcy, click here.