Financial issues are often a point of contention during a divorce and bankruptcy can complicate the situation even further. When soon-to-be-former spouses are considering or in the process of a Chapter 13 bankruptcy, the decision to divorce can have a major effect on the bankruptcy.
Chapter 13 bankruptcy is the option chosen by those who are earning money, but in need of a controlled plan for paying back their unsecured debts or catching up on arrears for secured debts like a mortgage or car loan. You can file for Chapter 13 bankruptcy jointly or as an individual. There are numerous factors to consider when ending your marriage and dealing with bankruptcy. Your divorce will have an effect on the re-payment plan, so you need to carefully review your circumstances with a bankruptcy expert before making any decisions.
What are some important considerations related to bankruptcy and divorce?
Determining If a Debt Can be Discharged
The first and most important question you must ask when it comes to divorce, debt, and bankruptcy is “Is a particular debt related to domestic support obligation?” In cases when a debt is part of alimony or child support, it cannot be discharged.
Your Bankruptcy Attorney
Another consideration is your bankruptcy attorney. If you and your spouse began Chapter 13 proceedings prior to filing for divorce, the attorney hired to handle your bankruptcy represents both of you. Unfortunately, now that you are divorcing, this creates a conflict of interest and your bankruptcy attorney might need to withdraw.
Your Repayment Plan
As mentioned earlier, one of the biggest factors related to divorce and bankruptcy is how your divorce affects your ability to meet your Chapter 13 repayment obligations. Though divorce can make it tougher to complete your repayment plan, it does not mean your bankruptcy will need to be dismissed. You have a few options for continuing the bankruptcy process, including:
Continue to make the payments as usual – this is only an option if you are still able to afford the payments with the added expenses related to your divorce AND your ex and you agree on how to divide the payments if the Chapter 13 bankruptcy was originally filed together.
Convert to Chapter 7 Bankruptcy – You might now qualify for Chapter 7 even if you did not before. Your divorce has likely affected your disposable income and the additional expenses could make you eligible for Chapter 7. Remember, this could result in other changes in your bankruptcy, including issues with mortgage foreclosure or tax debt.
Modify the Existing Chapter 13 Arrangement – If you prefer not to convert to Chapter 7 or you are not eligible, it might be possible to change your current repayment plan. Your budget has changed because of your divorce, so the court might be willing to modify your payments based on your new situation. Speak with a bankruptcy attorney about this option because it will require you to file a motion to reduce your monthly payments.
Bifurcate Your Bankruptcy – This changes your current single shared bankruptcy into two separate bankruptcies, so you no longer share bankruptcy with your former spouse. Once completed, each person has the option of determining which bankruptcy option is in his or her best interest.
The laws governing divorce and those governing bankruptcy are vastly different, so it is important you understand both issues before making decisions. Working with a divorce attorney can only help you so much if you are considering bankruptcy, and vice versa if you are consulting with a bankruptcy attorney and on the path to divorce. Ideally, you will have the expertise of both a divorce attorney and bankruptcy attorney to help you through this complex phase in your life.
If you would like to learn more about filing for bankruptcy or you are ready to move forward with your filing, contact the law office of Frank J. LaPerch, PC at 845.942.5500.