How Income and Expenses Are Affected
The question of, “Can you get a divorce while in chapter 13 bankruptcy,” touches upon many considerations that affect both the divorce and the bankruptcy. This decision should be made after careful deliberation. Some of the factors to consider are how income and expenses will change after divorce, including the cost of attorneys’ fees, additional rent, and child support and alimony.
A Chapter 13 bankruptcy is a three- to five-year payment in which all of the debtor’s disposable income is devoted to paying creditors. The term “disposable income” is defined under the Bankruptcy Code as “current monthly income received by the debtor (other than payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19), child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable non-bankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended –
(i) for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed; and
(ii) for charitable contributions…; and
(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.
The term “Current Monthly Income” is defined by the Bankruptcy Code as means “the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii).
In summary, disposable income in Chapter 13 is calculated by first determining all sources of income earned by the debtor six months prior to filing the bankruptcy, and then deducting expenses for the support of the debtor or debtor’s dependents, deducting charitable contributions, and if the debtor owns a business, deducting expenses of the business.
When answering, “Can you get a divorce while in Chapter 13 bankruptcy,” it is important to understand that if a married couple files a joint Chapter 13 bankruptcy, or if only one spouse files a Chapter 13 bankruptcy while married and living together, both spouses’ income and expenses are used to calculate disposable monthly income, which is the amount that is paid under the Chapter 13 plan to unsecured creditors such as credit cards and personal loans. Therefore, in order to analyze what the bankruptcy looks like if the couple gets a divorce while in Chapter 13, a good starting point is how the plan payment will change.
Divorce can also range from a cordial, inexpensive process if the couple is able to resolve their issues out of court and can obtain an uncontested divorce, or a drawn out, expensive process if the couple wishes to hotly contest the divorce proceeding. Keep in mind that since all disposable income must be devoted towards the Chapter 13 plan, attorneys’ fees must be carved out in the bankruptcy expenses for the divorce if it can be demonstrated that having an attorney provides a benefit to the bankruptcy estate. This can occur, for example, if the marital home has equity and a non-filing spouse seeks to kick the filing spouse out of the home and eventually wishes to transfer the home to him or her. The filing spouse may now have to pay a mortgage in addition to a rental expense, which could cause the Chapter 13 plan to fail. In this case, it may be advantageous to the bankruptcy estate for the filing spouse to retain an attorney.
Additionally, divorce can create new obligations of the filing spouse, such as child support or alimony, which must be paid and can reduce the Chapter 13 plan payment. A court can award child support and alimony without violating the automatic stay, and these obligations will increase the expenses of the filing spouse. This can either reduce the amount that is paid to unsecured creditors or cause the Chapter 13 plan to fail.
The answer to the question of, “Can you get a divorce while in Chapter 13 bankruptcy,” an analysis of how the divorce will impact income and expense is an important step. If you have questions about bankruptcy and divorce, please call Steiner Law Group at (410) 670-7060.