Chapter 13 bankruptcy is a complicated chapter of bankruptcy and it only gets more complicated when you’re married and managing some debt separately and others jointly. So, it’s natural to have a lot of questions. After all, navigating your personal finances can be tricky business. Can you file Chapter 13 and not your spouse? Can one of you file Chapter 13 and the other Chapter 7? And what happens if you file for Chapter 13 jointly, but then decide to get divorced? Can you get divorced in Chapter 13? The short answer is YES…but it’s complicated. So, let’s dive right in.
Can You Get Divorced While in Chapter 13?
Chapter 13 is a very common type of bankruptcy and a very helpful tool for reorganizing your debts and helping you get a fresh start by paying back debt over a 3 to 5 year period. However, a lot can happen during that time, including divorce. The problem is that the previously agreed upon bankruptcy payment plan was created based on your combined income, expenses, and assets as a married couple. So, what happens during a divorce? Well, there are a few options…
- Continue to work together and follow the Chapter 13 payment plan. Even if you get divorced, you can still continue to make your regularly scheduled payments. This option is certainly the easiest logistically, requiring the least amount of effort. But it can be difficult to manage if you and your spouse no longer get along, or if your individual financial circumstances no longer allow you to maintain your current payment. This is the simplest option, but may not always be the best option.
- Modify the payment plan with court permission. If you decide it’s too difficult to maintain the existing Chapter 13 payment plan while getting divorced, you and your spouse can consider a motion to modify the plan based on your new circumstances. Because your budget now includes expenses for multiple households, you won’t have as much disposable income to pay into your Chapter 13 plan. So, you may be able to have your monthly payments lowered. However, the judge can only adjust the amount paid to general unsecured creditors, such as credit card balances, medical bills, and personal loans.
- Convert to a Chapter 7 bankruptcy instead of maintaining the Chapter 13 payment plan. Even if you did not originally qualify for Chapter 7 as a couple, you may now qualify as an individual. After all, maintaining two households costs a lot more than maintaining a single household. Your financial situation has drastically changed. But Chapter 7 bankruptcy may not necessarily be in your best interest. It’s best to consult an experienced bankruptcy attorney before making any major decisions.
- Bifurcate the bankruptcy into two separate bankruptcies by petitioning the court.This allows you and your spouse to proceed in the manner that is best for each individual. This can mean one of you converting to Chapter 7, or one of you petitioning the court to lower your monthly payments. There are several possibilities.
Here’s an example of a complicated case that Steiner Law Group helped our clients resolve. Our clients were married when they filed for Chapter 13, and they filed for Chapter 13 for a number of reasons. First, one spouse only had a significant amount of tax debt owed to the IRS and State of Maryland, and the tax debt was not dischargeable in a Chapter 7 bankruptcy because it was considered priority debt. Each spouse had their own credit cards, and there was a small amount of debt that both spouses were responsible for. One spouse was the breadwinner for the family and the other spouse earned a very low income. The high-earning spouse owned a home in which the low-earning spouse had no interest.
The couple decided that they wished to divorce and the divorce was amicable, which made the process much smoother for both spouses. The home significantly increased in value, and the home-owning spouse wished to sell the home to pay off her portion of the Chapter 13 bankruptcy.
The best option for this couple was to first bifurcate the case. This allowed each spouse to have their own Chapter 13 which they could then deal with their own debt. The home-owning spouse sold her home and paid off her creditors in full, and the other spouse converted his case to Chapter 7 to eliminate the credit card debt that he had. That spouse then would have to work out his own plan with the IRS and State of Maryland to resolve his outstanding tax liabilities. So, can you get divorced while in Chapter 13? Absolutely! However, the best way to proceed depends on your individual circumstances. To find out what’s best for you, consult an experienced bankruptcy attorney in your area. After all, Chapter 13 bankruptcy is a complicated process, like we said before. Steiner Law Group can help you understand the bankruptcy process, evaluate your options, and let you know how best to proceed. Steiner Law Group is a boutique law firm in Maryland that assists individuals and businesses with bankruptcy and financial restructuring services. We have helped hundreds of individuals, families, and businesses discharge millions in debt. If you have more questions about Chapter 13 bankruptcy, please schedule a risk free consultation or contact Steiner Law Group, LLC a Baltimore, Maryland law firm at (410) 670-7060 to learn more about bankruptcy options.