Sometimes, life's timing can make you feel like the world is caving in on your head. If you were facing financial problems significant enough to prompt you to file for chapter 13 bankruptcy, and then find that your marriage is falling apart as well, it's natural to worry how one will affect the other. While you might need the help of an attorney to sort through factors unique to your case, some common rules apply.
You're Not Forced to Do Anything
Chapter 13 involves repaying your debts over three to five years with your disposable income, which is the income remaining after you meet your necessary living expenses. The bankruptcy court doesn't care if you and your spouse continue to live together while you do this. All that concerns the court is that you continue to make payments required by your chapter 13 plan if you filed for bankruptcy on your own, or that one or both of you makes payments if you filed together. If this proves impossible, you have options, but you're not forced to make any changes as long as you keep current with your payments to the trustee.
Converting to Chapter 7
If you filed for bankruptcy together, you and your spouse can agree that the both of you will continue with your payments to the trustee following your divorce. Depending on why you filed for chapter 13 in the first place, however, you might not want to do this. If your first choice was to file for chapter 7, but you couldn't pass the means test -- a qualifying formula designed to keep filers with higher incomes from filing for chapter 7 -- your divorce might change your financial circumstances. Chapter 7 is a liquidation bankruptcy, meaning the trustee sells your non-exempt property if there is any, and then gives the proceeds to your creditors. The balance of most of your debts is discharged. To pass the means test, you must show that you don't earn enough to repay your debts. Once you and your spouse separate and are supporting two separate households, you will have an increase in living expenses that might help you pass the means test. You can then convert to chapter 7 and enjoy a fresh start when you divorce. If you filed for bankruptcy on your own, your spouse's income was considered available to you to help pay your monthly expenses, freeing up disposable income for your creditors, so losing it can affect the means test as well.
Modifying Your Plan
Chapter 13 allows you to keep non-exempt assets. If you filed for chapter 13 because you were trying to save your home, converting to chapter 7 may not be the answer. In this case, you can file a motion with the court, asking to modify your plan payments instead. You can request that they be lowered to reflect your increased living expenses or the loss of your spouse's income.
Bifurcating the Proceedings
You have one other option if converting or modifying your plan doesn't meet your unique needs and if you and your spouse filed for bankruptcy together. You can bifurcate your proceedings, which means dividing your original joint bankruptcy into two separate ones. This might be an alternative if you and your spouse simply cannot get along well enough to continue making payments together post-divorce, or if one of you insists on converting to chapter 7, while the other wants to modify the plan. When you bifurcate a bankruptcy, you don't both have to settle on the same resolution. One of you can convert, and the other can continue with a chapter 13 plan, downsized to include less debts because the other spouse took responsibility for some in her bankruptcy. Bifurcation is a complicated process, and you may not be able to handle it without an attorney. Additionally, you and your spouse may not be able to continue using the same bankruptcy lawyer because it can become a conflict of interest for him to represent both of you, particularly if you're at odds.