Marriage, Divorce, and Chapter 13 Bankruptcy
Chapter 13 bankruptcy can be a powerful tool for people with above-median income, non-exempt assets, or significant secured debt. In a Chapter 13 plan, you may be able to reduce interest on some debts, eliminate late fees, and gain time to pay off past-due balances without the risk of lawsuits, wage garnishment, and other collection action. You may even be able to discharge (eliminate) some unsecured debt.
But, Chapter 13 is a relatively long-term commitment. The minimum plan duration is three years, and many Chapter 13 plans span five years. A lot can change in three to five years, and those changes can impact your bankruptcy case. One common example is a change in marital status.
Las Vegas’s reputation for quickie marriages and quickie divorces may not be entirely accurate. Nevada marriage and divorce rates have declined significantly in recent years. But Clark County does see more than its share. A report from the University of Nevada, Las Vegas (UNLV) Center for Democratic Culture revealed that Nevada has consistently posted the highest marriage rate in the country since 1999. In 2010, more than 90,000 couples married and more than 11,000 divorced in Clark County.
Getting Married During a Chapter 13 Bankruptcy Case
Though many people are concerned about the impact marriage may have on a Chapter 13 bankruptcy case, or that a pending Chapter 13 case may have on the new spouse’s credit, there’s usually no reason to delay nuptials until a Chapter 13 case winds down. But, you will be required to report changes to your household, including the number of people living with you and any income your new spouse may have.
The best course of action is to consult your bankruptcy attorney before you set the date. Your lawyer can advise you as to what changes may be required and how those changes might impact your Chapter 13 plan. Depending on the number of new members in the household, added expenses, and additional income, your modification may result in either an increase or decrease in plan payments. Your attorney can tell you what to expect before you make any changes.
Chapter 13 Bankruptcy and Divorce
Financial stress can strain a relationship, so some couples are already experiencing marital problems when they enter into a Chapter 13 plan. Others file for bankruptcy planning to clean up their finances together and build a stronger future, but encounter conflicts along the way and decide to part ways.
In either case, the divorce can seriously complicate a Chapter 13 case. How serious those complications are depends on a variety of factors, including:
- How amicable or contentious the divorce is
- Whether the debt included in the bankruptcy plan is largely joint or skews toward one person
- The need to liquidate assets to reach a property settlement
If the couple is still able to work together to settle up their debts and move forward, it may be possible to move forward with the Chapter 13 case. In some cases, the same attorney may even continue to represent both parties, as long as their interests aren’t in conflict and they sign appropriate waivers.
But, if the debts all or mostly belong to one person or the parties are fighting over property, responsibility for debts, spousal maintenance and other issues in the divorce court, the couple may have to explore other options. Some possible solutions include:
- Asking the court to split the case
- Dismissing the case outright and allowing each party to make a decision about how to move forward separately
- Dismissing the case as to one party while the other continues in the plan
Each of these possibilities carries with it different issues to be resolved. For example, if the parties divorce and one spouse is dismissed out of the bankruptcy case, both household income and expenses will be altered for the spouse continuing with the Chapter 13 case. That means the plan will likely need to be modified to reflect the remaining debtor’s current disposable income and any changes to debt included in the plan.
Another complication that may arise relates to the division of assets that normally takes place in a divorce case. In a Chapter 13 case, your property becomes part of the bankruptcy estate. In a divorce case, it is not unusual for the couple to liquidate assets–especially large assets such as a home–as a means of splitting up their property. Or, one party may sign over an asset to the other to balance out something else he or she received, or in lieu of spousal support.
In Chapter 13, those options may not be available to you. Court permission is required to sell an asset, and if only one party is in Chapter 13, transferring a significant asset to the other, non-filing spouse may be prohibited.
Be Prepared When Marrying or Divorcing in Chapter 13
The bottom line on both marriage and divorce during a Chapter 13 bankruptcy case is that it’s certainly possible, but it will likely impact your bankruptcy case to one degree or another. And, in the case of property division issues, the bankruptcy case may impact your divorce.
If you’re in a Chapter 13 bankruptcy case and are considering either marriage or divorce, talk to your bankruptcy attorney as far in advance as possible to gather more information about the possible impact of your change in status and your options for moving forward. If you’re considering filing a Chapter 13 case and have reason to believe that marriage or divorce may be on the horizon, be sure to discuss that with an experienced local bankruptcy attorney before you make any decisions. The attorney can help you assess whether it is better to file bankruptcy before or after your divorce, and whether you should consider filing with your spouse or separately.