Bankruptcy And Divorce: Attorneys’ Fees, Conflict Of Interest & Severing A Case

Attorney Conflicts of Interest and Paying For Your Divorce Attorney.

If a married couple files a three-to-five-year Chapter 13 plan of reorganization and decides during the course of the Chapter 13 to get divorced, a number of considerations arise regarding the married couple’s bankruptcy attorney and divorce attorneys that each spouse may retain. These nuances are particularly important when considering bankruptcy and divorce, and factor into answering the question of can you get a divorce while in Chapter 13 bankruptcy?

What is a Joint Bankruptcy Case?

A joint bankruptcy case arises when a married couple files a single bankruptcy petition. The Bankruptcy Code states:

“A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter.”

11 U.S.C. § 302.

Federal Rule of Bankruptcy Procedure 1015(b) allows consolidation of two bankruptcy cases filed by married spouses.

It is a simple matter to file a joint case, but more complicated to sever the joint case. A motion must be filed with the court requesting that the cases be severed / deconsolidated, and additional schedules and separate Chapter 13 plans would most likely need to be filed in both cases, including an allocation of the assets and debts of each spouse. If a couple is considering bankruptcy and divorce and one or both spouses wishes to continue with the Chapter 13 case, severing the case is an important step.

Conflict of Interest When a Married Couple Gets Divorced in a Chapter 13 Bankruptcy.

If a married couple gets divorced while in Chapter 13 bankruptcy, many issues can arise during the divorce to put the couple’s interests at odds with each other. Division of property, custody of children, and payment of alimony and child support are a few examples of some of these issues. These can lead to a clear conflict of interest for the couple’s bankruptcy attorney, and each spouse would therefore need to retain their own separate bankruptcy attorneys.

For example, if a couple gets divorced while in Chapter 13 bankruptcy and one spouse is ordered to pay child support to the other, the child support payment has to be factored into both spouses’ budgets when considering disposable income for each of their separate Chapter 13 repayment plans. When considering, “Can you get a divorce while in Chapter 13 bankruptcy,” the spouses should be aware that they may need two separate attorneys for each bankruptcy case.

Paying Divorce Attorneys’ Fees while in a Chapter 13 Repayment Plan

Another factor to consider when answering “Can you get a divorce while in Chapter 13 bankruptcy” is that if a married couple decides to go through with bankruptcy and divorce, each spouse will also most likely need to hire a divorce attorney. Since all disposable income must be devoted to creditors in a Chapter 13 case, there must be room in the budget beyond disposable income to retain divorce attorneys. This scenario would likely arise in a “100 Percent Plan” in which all unsecured creditors are being 100 percent of their claims, or in a case in which some or all of the unsecured creditors do not have valid claims, and therefore would not be paid under the couple’s Chapter 13 repayment plan.

Options After Severing the Joint Chapter 13 Case

If the couple considering bankruptcy and divorce decides to sever their Chapter 13 case, each spouse can then decide whether they wish to continue with their separate Chapter 13 case, possibly convert to a Chapter 7, or voluntarily dismiss their Chapter 13 case. If each spouse decides to continue their separate Chapter 13 cases, both spouses’ Chapter 13 plan would have to take into account the new budget of each individual spouse, as well as an analysis of each individual spouse’s assets and debts.

If one spouse was the primary income-earner, the other spouse may wish to convert their case to a Chapter 7 if they have debts that they wish to discharge and otherwise qualify for Chapter 7. Finally, one spouse can decide to voluntarily dismiss their Chapter 13 case, after carefully considering the impact that a voluntary dismissal has on any future bankruptcy filings.

When a couple contemplates bankruptcy and divorce, there are a number of unique considerations that arise. If you have questions about bankruptcy and divorce, please call Steiner Law Group at (410) 670-7060.