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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.

Divorce Chapter 13

You Can Do A Divorce and Chapter 13 Bankruptcy at the Same Time

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

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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

Adversary proceedings are lawsuits filed in the context of a bankruptcy proceeding. One hurdle to discharge of debt in a 13, after is is ordered to be paid,is opposition form 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 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 beyond the services offered by some attorneys. So if you are considering discharge of marital debt in a 13, you need to thoroughly review this with a very experienced 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 stay abreast of all changes in the law.

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Useful Calculators

Here are two helpful calculators for managing your debt repayments and Chapter 13 commitments.