You and your spouse may need the extraordinary benefits of Chapter 13, but issues can arise in you divorce during a Chapter 13.
As the last few blog posts have shown, the Chapter 13 “adjustment of debts” procedure has many powerful tools that are not available in a Chapter 7 “straight bankruptcy.” But it takes 3 to 5 years to finish. And it involves a certain amount of oversight of your income and expenses by a Chapter 13 trustee during that period. So, generally, you need to be getting along and willing to work together. As a rule, we never file a Chapter 13 case for couples likely to divorce. It just doesn’t make sense. Budgets are going to change, assets are going to be divided, people are going to stop talking to each other, etc…. If your marriage ends before the case does, issues will definitely come up.
These downsides are more than worthwhile in the right circumstances. But the Chapter 13 cases that are successful tend to be ones in which the debtors’ income and expenses are reasonably predictable over the time it takes to finish the case.
There is some flexibility—Chapter 13 payment plans can usually be adjusted to address changed circumstances. A case can be dismissed and started over, or converted into a Chapter 7 case.
But Chapter 13 cases tend not to meet their main goals—such as saving a house or dealing with a bunch of income tax debts—if the debtors’ financial lives are turned upside down a year or two into the case. So if you and your spouse file a joint Chapter 13 case and then the two of you decide to get divorced a year or two later, the main goals for the case will not likely be met, and its cost and effort will not likely be worthwhile. When you separate households, you may not be able to afford the Chapter 13 payments anymore, for example.
Legally You Can File Jointly As Long As You’re Married
Everyone knows that financial pressures are one of the biggest causes of divorce, so couldn’t filing a Chapter 13 case relieve those pressures and give the marriage a much better chance of surviving?
Absolutely. A Chapter 13 plan usually greatly reduces the immediate, month-in-month-out debt burden, and in the longer term usually relieves you of much or even most of your debts. It enables you to have a decent amount to spend on your living expenses, and often gives you a way to meet family goals like keeping your home or taking care of your back income taxes. The emotional benefits from solving these immediate and longer term challenges indeed can help your marriage get on firmer footing.
So, yes, you and your spouse can file a joint Chapter 13 case as long as you are married. And yes, it may be sensible to believe that filing one could help the marriage. But it’s really important to be realistic about it.
What Are the Steps in Being Realistic?
Start by honestly thinking about how solid your marriage truly is, and how likely it’ll last longer than a Chapter 13 case.
Then be sure you fully understand what a Chapter 13 case would and would not do for you. How much of an immediate relief it would provide. How much money it would save you long term. What other benefits it would provide—monetary and otherwise—such as saving your home, lowering the cost of your vehicle loan, making it easier to get rid of or pay off your income taxes. Think very honestly about how much this will help you day by day, and help your future, and so how much it’ll help your marriage.
And lastly, as much as you may not want to, do directly consider the possibility that your marriage would not last longer than the bankruptcy case. And be aware what the consequences of that would be.
What If We DO Get a Divorce During a Chapter 13 Case?
The consequences of getting divorced while in an ongoing joint Chapter 13 case depend on the unique details of the case. But here are some broad possibilities:
- You and your spouse can almost always “dismiss” your case—both of you get out of it, and usually in a matter of just a day or two. But that’s seldom a solution of itself, if for no other reason than that the ongoing Chapter 13 case prevented creditors from pursuing you and your assets, so dismissing it would allow them to start at you again.
- Your case can be converted into a joint Chapter 7 case, for example, if because of the divorce you jointly decide to give up the family home, and instead focus on just “discharging”—legally writing off—as much debt as you can before getting divorced.
- Your Chapter 13 case can be “severed,” divided into two separate cases, one for each spouse, for each to decide what is best for that person—continuing in a Chapter 13 case in that person’s name, converting into a Chapter 7 case, or dismissing his or her case and dealing with creditors directly.
- You may have to find new separate attorneys, since your original attorney could have a conflict in representing either of you at this point (since your interests may diverge).