How Is a Chapter 13 Bankruptcy Affected by a Divorce?

 Posted on November 09, 2021 in Chapter 13

When a family is struggling with debt, Chapter 13 bankruptcy can often be a good solution that will allow them to consolidate certain debts into a single payment plan, discharge debts after the payment plan is completed, and maintain ownership of their home and other property. However, if a married couple decides to get a divorce before they have completed their Chapter 13 repayment plan, they will need to determine how their bankruptcy case will be affected and what steps they can take to address their outstanding debts.

Options for Chapter 13 Bankruptcy During a Divorce

Couples who have filed for Chapter 13 bankruptcy and begun making payments on a repayment plan have multiple options if they choose to get divorced. These include:

• Continue the repayment plan - A couple may agree that they will both continue to make payments until their Chapter 13 repayment plan has been completed. This may be a good option if a couple is close to completing all of the payments in their plan or if both spouses will have the means to continue making payments after getting divorced. A couple may also be able to request a modification of their repayment plan based on reductions in disposable income due to the expenses of maintaining two separate households. As part of their divorce settlement, spouses will need to agree on how they will divide payments. If one party fails to make payments, this may leave the other party in a difficult position, so spouses will need to make sure they both understand their requirements as they complete their Chapter 13 case.

• Convert to a Chapter 7 bankruptcy - A couple may voluntarily dismiss their Chapter 13 bankruptcy case, and either spouse may then file for Chapter 7 bankruptcy to discharge the debts that are allocated to them during their divorce. While a couple may have originally opted for a Chapter 13 bankruptcy in order to avoid foreclosure on their home, this may no longer be a concern following a divorce, and Chapter 7 may allow for a faster discharge of debts. Divorced spouses may also be able to qualify for Chapter 7 if they had not been able to pass the means test while they were married.

• Sever the Chapter 13 bankruptcy - To ensure that both spouses will be able to complete the bankruptcy process and make payments under a repayment plan, their joint Chapter 13 bankruptcy may be divided into two separate bankruptcy cases. This will allow each spouse to continue making payments based on their disposable income, and they can discharge their individual debts once their plans have been completed.

Contact a New Braunfels Chapter 13 Bankruptcy Attorney

If you have questions about how to handle bankruptcy-related matters during your divorce, Law Offices of Chance M. McGhee can advise you on the best ways to proceed. We will explain your options and make sure you take the right steps to address your debts, ensuring that you will have the financial resources you need once your divorce has been finalized. Contact our Kerrville bankruptcy and divorce lawyer at 210-342-3400 to set up a complimentary consultation.

Sources:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

https://equaljustice.wy.gov/application/files/2715/5877/3861/Lund_IntersectionBKDiv112014.pdf