Chapter 13 and Divorce: Timing Your Bankruptcy Filing Right

Divorce and debt often arrive together. For many, Chapter 13 bankruptcy becomes part of the separation process. But timing matters.

Filing bankruptcy before, during, or after divorce creates different outcomes. Understanding how Chapter 13 works helps you make the right choice for your situation.

Key Things You Need To Know

Chapter 13 bankruptcy helps you catch up on secured debts. You can keep your property and repay what you owe over 3-5 years. The process also addresses joint debts, lease obligations, and some divorce-related debts.

Filing before your divorce is final creates complications. You and your spouse stay legally and financially connected for years. Both processes become harder and more expensive to manage.

Filing during a pending divorce stalls your divorce case. The bankruptcy’s automatic stay limits what the divorce court can do. Child support and alimony orders can still be enforced.

Joint filing with your spouse is possible during divorce. But it only works if you can cooperate for up to five years. You both need to stick to the repayment plan together.

Filing Chapter 13 without your spouse before divorce is rarely helpful. You still include their income and expenses in your case. You won’t get the full benefit of a solo filing.

Filing after your divorce is final is often the simplest option. You won’t coordinate with your ex. You’ll know exactly what assets and debts belong to you. You may even address certain divorce-related debts that Chapter 7 can’t discharge.

Chapter 13 differs from Chapter 7 bankruptcy. If you’re dealing mainly with unsecured debts like credit cards or medical bills, Chapter 7 might offer a faster solution.

Filing Before Your Divorce

Filing Chapter 13 bankruptcy on the brink of divorce is often a bad idea. The required 3-5 year repayment plan creates long-term complications.

Starting bankruptcy during a pending divorce triggers problems. The automatic stay stops divorce proceedings for 3-5 years.

Your divorce case suffers because the bankruptcy limits what the divorce court can do. Your divorce moves more slowly and costs more money.

Your bankruptcy case also suffers. If you filed jointly, one or both of you needs a new bankruptcy attorney. Once divorce is filed, you no longer share financial interests. Conflict of interest rules prevent the same lawyer from representing clients with opposing interests.

A joint Chapter 13 case can be divided into two separate cases. But the process requires significant work, additional fees, and usually results in at least one bankruptcy getting dismissed.

The automatic stay won’t stop child support or spousal support orders. The divorce court can still enter and enforce these while bankruptcy is active.

Joint Filing With Your Spouse

You can file a joint Chapter 13 bankruptcy while divorcing. You’re still legally married until the divorce is finalized. But the option doesn’t fit every couple.

A joint Chapter 13 case requires high cooperation for 3-5 years. If you and your spouse can work together, it offers real benefits.

Advantages of Joint Filing

Chapter 13 helps deal with joint marital debts. If you both want to walk away from property like a house or car, bankruptcy makes it easier. You can surrender the property and move on without selling it or dividing it in divorce.

Getting debts under control through bankruptcy simplifies your divorce. You reduce legal costs.

You can include alimony or child support payments in your repayment plan. Doing so ensures payments are made on time. Joint filers don’t split payments 50/50. You divide them however works for your situation.

Disadvantages of Joint Filing

Joint Chapter 13 comes with challenges. While the case is open, you can’t take on new debt or sell property without court approval. If you’ve already separated and are moving forward independently, these restrictions become tricky.

If one spouse stops making agreed-upon payments, the whole case risks dismissal.

Filing Without Your Spouse

Filing solo Chapter 13 while your divorce is pending creates its own challenges. You’re still legally married until divorce is final. You’ll likely need to include your spouse’s income and expenses in your bankruptcy paperwork.

Including your spouse’s information affects your monthly payment. It may extend your repayment plan to five years instead of three.

Chapter 13 cases last 3-5 years. During that time, you can’t sell assets or take on new debt without court approval. Meanwhile, your spouse may still be allowed to do those things through the divorce court. An imbalance develops that’s hard to manage.

When Solo Filing Might Make Sense

In most cases, filing solo Chapter 13 during divorce doesn’t offer advantages. But exceptions exist.

Some people move forward with Chapter 13 to stop a foreclosure or car repossession. Others file alone if their spouse isn’t on any debts and they don’t live in a community property state.

Filing After Your Divorce Is Final

For most people, filing Chapter 13 bankruptcy after divorce is final makes more sense. Once your divorce is complete, you don’t involve your ex-spouse in the process.

You won’t include their income or expenses in your bankruptcy paperwork. Your property and debts are already divided through the divorce decree. That clarity makes building a repayment plan much easier.

Benefits of Waiting Until After Divorce

Filing after divorce helps you in several ways:

• You avoid including your ex’s financial information in bankruptcy paperwork

• You know exactly which debts and assets you’re responsible for

• You can use Chapter 13 to deal with joint debts from the marriage

• You avoid ongoing coordination with your ex-spouse

• You can include certain divorce-related debts like property settlement obligations or attorney fees

If you’re eliminating your legal responsibility for a joint debt, remember something important. Creditors can still try to collect the full amount from your ex. If your divorce decree says you’re responsible for that debt, not paying could lead to problems in divorce court. In some cases, your ex may sue you if they pay a debt the divorce court said you would cover.

Divorce-Related Debts in Chapter 13

Many people wait because certain divorce-related debts can’t be included until divorce is complete. Money owed to your ex as part of a property settlement typically can’t be included in bankruptcy until divorce is final. These debts can’t be discharged in Chapter 7. But Chapter 13 may allow you to discharge them in some cases.

Chapter 13 vs Chapter 7 After Divorce

Chapter 13 isn’t your only option. If you’re mainly dealing with unsecured debts like credit cards or medical bills, Chapter 7 might be faster and simpler.

Chapter 7 bankruptcy typically takes 3-4 months from start to finish. You don’t have a repayment plan. Most unsecured debts get discharged quickly.

You need to qualify based on your income. If your income is low enough, Chapter 7 offers a fresh start without years of payments. Talk with a bankruptcy attorney for free to determine which chapter fits your situation.