Divorce and Chapter 13
The Secret to Discharge
You want do do a divorce and Chapter 13 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 ch13 often work very well together. You’ll need an experienced and certified bankruptcy attorney to guide you, but this website provides a good understanding of the basic issues involving divorce and Chapter 13.
You Can Do A Divorce and Chapter 13 Bankruptcy at the Same Time
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 can cram them down (pay less than in Chapter 7) in the Chapter 13. The wife keeps one car, the husband keeps the other. They pay less in the Chapter 13 and 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 in 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 a 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 13, and discharge it, even though 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 a chapter 7.
Watch Out for Adversary Proceedings
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Here are two helpful calculators for managing your debt repayments and Chapter 13 commitments.