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Divorce and Chapter 13

Chapter 13, Divorce and You

You want a divorce and need to file for bankruptcy. Perhaps you don’t qualify for Chapter 7, or perhaps you’ve learned on this site that there are significant dangers and limitations on divorce and Chapter 7.

Despite what you may read on the internet, divorce and Chapter 13 bankruptcy often work very well together. You’ll need an experienced and certified Chapter 13 bankruptcy attorney to guide you, but we can give you a basic understanding of general issues involving divorce and Chapter 13.

You Can File Divorce and Chapter 13 Bankruptcy at the Same Time

You will read on the internet that you should not do a divorce and Chapter 13 at the same time. I disagree. The fact that it is “simpler” to do one and then the other doesn’t mean that you cannot, or should not, do both at the same time.

Filing Chapter 13 bankruptcy and divorce concurrently permits you to coordinate both legal matters and get the best result at the same time.

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Reduce Legal Fees of Divorce and Chapter 13

Even if one spouse qualifies for Chapter 7 and the other qualifies for Chapter 13, there can be a cost savings to filing a joint Chapter 13. We frequently file 1% Chapter 13 cases, which pay virtually nothing to the unsecured creditors. I call these the “functional equivalent” of a Chapter 7.

In these cases, one bankruptcy will do the work of two. Couples seeking divorce and Chapter 13 will discharge their unsecured debts, keep their property, like cars and houses, and allocate the Chapter 13 payment as they like, between them.

For example, I regularly file cases where the wife would qualify for Chapter 7. Money is tight. There are two cars to keep, and we can cram them down (pay less than in Chapter 7) in Chapter 13. The wife keeps one car, the husband keeps the other. They end up paying less with Chapter 13 and the divorce after the Chapter 13 is confirmed. This helps their cash flow, which is always a concern when couples divorce.

Avoid Non-Dischargeable Debt Problems in Divorce with Chapter 13

There is a serious limitation on the dischargeability of debt using Chapter 7 if the debt is “in connection with” a divorce or dissolution, which can be addressed in a 13.

The limitation found in Chapter 7 is not present in Chapter 13. This is one of several important differences in the treatment of debt between Chapter 7 and Chapter 13.

You can list debt in a Chapter 13 bankruptcy and then discharge it. This is true even if the debt is listed in your divorce decree or separation agreement. You can also discharge property settlements in Chapter 13 that would be impossible to discharge in Chapter 7.

Watch Out for Adversary Proceedings When Divorcing During Bankruptcy

Adversary proceedings are lawsuits filed in the context of a bankruptcy proceeding. One hurdle when you are trying to discharge debt in a Chapter 13 bankruptcy is that after it is ordered to be paid, there may be opposition from a former spouse.

If you are ordered to pay a debt in your divorce, and the debt is a property settlement (not support), then you can normally discharge the debt in Chapter 13. Your spouse could contest this, however, and ask the court to exclude the debt from discharge, so you would still owe it.

Adversary proceedings are complex and often exceed the scope of services offered by some attorneys. So, if you are considering discharge of marital debt in a Chapter 13, you need to thoroughly review this with a very experienced bankruptcy attorney.

When you’re considering divorce and Chapter 13 at the same time, you should consult a board-certified bankruptcy specialist. I have handled these cases for many years and remain up-to-date on all changes in the law, and I provide free consultations for Ohio residents.

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