Divorce is complicated. You have to split assets, determine child custody and prepare for a new, single life. But what happens if your marriage was in financial disarray prior to getting a divorce?
If you're on a Chapter 13 repayment plan and you file for divorce, you're still responsible for the terms of the repayment plan.
An amicable divorce where both parties agree to continue with the plan is best, but this cannot be relied upon in all divorces.
So, what can you do?
Hold Off on the Divorce
You can choose to hold off on the divorce, but this may not be realistic for all couples. Chapter 13 bankruptcy occurs between a period of three to five years. If you have just six months to complete the bankruptcy, it's often better to wait on the divorce petition.
If you can't hold off on the divorce, you do have other options available.
Petition to Maintain the Current Plan
You and your ex agree that you would just like to complete your scheduled bankruptcy. It's less of a hassle, and you know that you can finally pay off the bankruptcy in the future. In this case, you'll want to hire a lawyer, or at least one spouse will, to go back to bankruptcy court.
You'll need to request that the plan remain the same. You will need to provide documentation on the divorce's agreed-upon debt and asset division of the divorce.
Dismiss the Plan
Chapter 13 does allow you to dismiss the plan, and in this case, you'll still have your martial debts in place. What dismissing a plan allows for is for the debts, in their entirety, to be split among spouses.
After the divorce, the spouses can then choose to file separate bankruptcy petitions for their portions of the debt.
The husband, for example, can opt to file for Chapter 13, while the wife can opt to file for Chapter 7 bankruptcy.
Restructuring the Plan
"Couples can ask the bankruptcy court to restructure or bifurcate their Chapter 13 plans. If this occurs, the court would divide the Chapter 13 plan into two separate plans and would need to approve of the debt division portion of the divorce case," explains Randolph Law Firm, P.C.
Restructuring allows exes to bifurcate their bankruptcy plan, dividing it into two cases.
Of course, you may not have the income to go with a Chapter 13 plan, so you may need to file for Chapter 7 protection at this point. Under Chapter 7, you'll not have to repay the debt. But Chapter 7 will leave a much bigger stain on your current credit than a Chapter 13 plan will.
It's wise to discuss all of your options with a bankruptcy lawyer or an accountant who deals with bankruptcy.
While a Chapter 13 does have an impact on divorce proceedings, it does not mean that you're without options. Bankruptcy laws offer many alternative options, such as dismissing or maintain a bankruptcy, so that you can divorce without entering a financial hole in the process.
