Options for When a Divorce Occurs During a Chapter 13 Repayment Schedule

Financial strain is one of the most commonly cited reasons for divorce in the United States. When one or both spouses are earning a steady income, a Chapter 13 repayment plan might be the best way for a couple to get their money issues and their relationship back on track. Chapter 13 bankruptcy involves a court-approved repayment plan that typically lasts three to five years, during which you and your spouse are required to make regular payments to creditors. Unfortunately, there are no guarantees, and sometimes marriages end while spouses are in the midst their repayment schedule. As the terms of their order are based on combined household income and expenses, this can disrupt their ability to remain in compliance. 

Should you decide to end your marriage before completing a Chapter 13 schedule, you should seek legal counsel to discuss one or more of these options: 

• Split up the obligations — As part of your divorce, you might negotiate to divide the current repayment obligation between yourself and your spouse in the same way that marital assets are split when a marriage ends. If both of you are able to make half of the overall monthly payment to creditors, this might be a simple calculation. In other cases, one party might take on a greater share than the other. However, this option may not be feasible if the divorce creates financial strain or if one party is unwilling to contribute to the payments.
• Create separate Chapter 13 plans — Sometimes maintaining the existing repayment terms is not feasible. Another option is for one or both spouses to file for a new Chapter 13 plan. This typically involves converting the joint bankruptcy case into two separate cases, with each spouse filing their own repayment plan based on their individual financial circumstances. While this might give each party terms better suited to there specific needs, it does require additional legal and administrative steps, including court approval.
• File for Chapter 7 bankruptcy — In some cases, the financial realities of divorce may make it impossible to meet the repayment terms of a Chapter 13 plan. If this happens, filing for Chapter 7 bankruptcy may be an alternative. Chapter 7 involves liquidating nonexempt assets to pay creditors and discharging most remaining debts. While this option can provide a fresh start, it is important to note that not everyone qualifies for Chapter 7, as it requires passing a means test to demonstrate financial hardship.

Going through a divorce during the Chapter 13 bankruptcy process can be complicated, and the best course of action will depend on your unique financial situation and goals. With the right legal guidance, you can work toward resolving your personal challenges while maintaining financial stability. 

Jeff Field & Associates, represents Georgia clients in Chapter 13 cases and other bankruptcy matters. For a consultation, please call 404-381-1278 or contact us online. We have locations in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.