What Happens to Chapter 13 During a Divorce?

By Christine Funk, J.D.

What Happens to Chapter 13 During a Divorce?

By Christine Funk, J.D.

When a couple files for Chapter 13 bankruptcy, they agree to pay their debts on a schedule detailed and approved by the bankruptcy court. This plan is created based on the income of the couple and usually lasts three to five years. When a couple divorces during this time frame, the Chapter 13 bankruptcy can be dealt with in a few different ways.

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Chapter 13 Bankruptcy Options During a Divorce

There are several options for possibly modifying a Chapter 13 bankruptcy during a divorce. The best way to proceed depends on the circumstances of each individual couple.

Continue as Before

One option during and after a divorce is to continue making payments as prescribed in the payment plan. If the couple can afford it, this option requires the least amount of additional effort. Additionally, if the couple chose Chapter 13 bankruptcy to preserve ownership of a home, for example, staying the course may make the most sense.

Modify the Payment Plan

Alternatively, given the new facts and circumstances, a couple may choose to return to court to alter the payment plan. The bankruptcy court will consider a motion to modify the amount of payment based on the new circumstances.

Convert to Chapter 7 bankruptcy

In a Chapter 13 bankruptcy, the parties agree to make payments over the course of several years to address debts. In a Chapter 7 bankruptcy, debts are forgiven. Because a Chapter 7 bankruptcy considers income in relation to expenses, someone who did not originally qualify for a Chapter 7 bankruptcy may now qualify. When a couple divorces, their expenses typically go up, as they now support two households. This could cause one or both parties to qualify for a Chapter 7 conversion.

Bifurcate the Bankruptcy

Some couples might benefit from a bifurcated bankruptcy. In this situation, the bankruptcy is divided into two separate bankruptcies. This allows each party to proceed in the manner best for them. This can include lowered payments or a conversion to a Chapter 7 bankruptcy. Particularly if one party does not trust their former spouse to continue making payments as required, a bifurcation may be best.

While a Chapter 13 bankruptcy is ongoing, the parties are not allowed to transfer property without permission of the bankruptcy court. If, for example, one party is awarded the home in the divorce, the bankruptcy court must be involved.

Legal Representation During Divorce and Bankruptcy

In any divorce case where there is a Chapter 13 bankruptcy, the parties should immediately notify their bankruptcy attorney. The bankruptcy attorney first determines the best course of action regarding representation.

When a couple divorces, the bankruptcy attorney may continue to represent both parties in some cases. However, if the divorce results in the parties having a conflict of interest, the attorney may not continue to represent both parties.

The couple's attorney can also discuss options going forward and advise the parties about the best approach: continue as before, modify the plan, convert to Chapter 7 bankruptcy, or bifurcate the bankruptcy.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.