Divorce After Chapter 13 Bankruptcy

Often, divorce precedes bankruptcy, and is, in fact the “last straw” that pushes an individual into bankruptcy. While in many cases the financial hardships caused by divorce are legitimate, prior to the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 bankruptcy was often used as a way to completely sever ties with an ex-spouse and avoid financial obligations.

Couples contemplating both bankruptcy and divorce should probably complete the divorce prior to the bankruptcy rather than wait until later. They will not be allowed to proceed with both at the same time.

One reason why couples should divorce first and file second is that their financial status will be clear from the outset. They may be allowed to file Chapter 7 rather than Chapter 13.

Chapter 13 is a bankruptcy that includes a repayment plan of some or all of a person’s debt over a three to five year period. It is generally chosen in order to save a valuable asset – such as the family home. In some cases it is the only option available because a couple’s income is too high to qualify for Chapter 7.

If you have already filed Chapter 13, your divorce could permit you to alter the terms of your bankruptcy and allow you a lower payment or even a grace period with no payments while you work things out. It could also qualify you to convert to Chapter 7 – in which all debt is wiped out.

Any change in financial circumstances can grant you this leeway. Other instances could be loss of employment or illness.

The important thing to remember is to notify your trustee immediately – especially if the pending divorce means you don’t have the money to make the scheduled Chapter 13 payment. Whatever you do, don’t just ignore the payment without first notifying the trustee of the reason.

In order to have your case reviewed and possibly alter the terms of your bankruptcy you will have to file appropriate documents, which include proof that one party has moved out and is paying rent and/or utility bills at another location. So it is important to determine that the divorce really will take place and you really will be maintaining separate households.

The increased household expense would be the determining factor in deciding whether the bankruptcy terms can be altered.

Author: Mike Clover

One Response to “Divorce After Chapter 13 Bankruptcy”

  1. mike says:

    divorce or bk can be filed at any time. neither have been. h and w separated. she is milling to join in or sign waiver so he can file separately. california. How about filing the disso, wait til default time, file settlement agreement with default. h has business that needs it pretty badly.

    mike mcenroe sacramento 209 267 1381.

    anxious for advice on this problem.

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