Divorce During A Joint Chapter 13 Bankruptcy In Henderson

When income makes a debtor ineligible, or a debtor has nondischargeable debts like secured and priority debts, chapter 7 bankruptcy lawyers often explain why chapter 13 bankruptcy wins out over chapter 7 bankruptcy as the ideal method of debt relief. It reorganizes debts into a payment plan that pays off bankruptcy expenses, secured debts, and priority debts, finally followed by unsecured debts, but only to the extent that the debtor can afford. A married couple can also file a joint chapter 13 bankruptcy payment plan together to pay off separate and community property debts. But depending on their household income level, that payment plan will last either 3 or 5 years. Nevada ranks #4 on the list of states with the shortest marriages, with an average duration of 17.7 years compared to the national average of roughly 20 years. It’s highly possible that a couple who files for chapter 13 bankruptcy in Henderson could find themselves in need of divorce during their joint payment plan. If so, are they trapped in marriage and bankruptcy, or are there ways to relieve debts and dissolve the marriage simultaneously? Read on for more information on this subject, and if you’re seeking a free phone consultation with an experienced Henderson bankruptcy lawyer, call 702-899-3328 today.

Determining a Chapter 13 Bankruptcy Plan

Understanding how a chapter 13 bankruptcy plan is formulated, something Henderson chapter 13 lawyers regularly explain, can make it easier to understand strategies that are available if a married couple in an active case seeks to get divorced. Qualifying for chapter 13 bankruptcy isn’t a guarantee. Unlike in chapter 7 bankruptcy, where the debtor must prove their income falls below a certain level to qualify, a debtor must have sufficient income to pay off mandatory debts, given their monthly expenses and their payment plan’s term. Bankruptcy costs, secured debts, and priority debts must be paid off during a chapter 13 plan, and unsecured debts can be cleared at the plan’s conclusion. How much disposable monthly income a debtor has is calculated using the means test.

The first step to the means test is determining average monthly household income. This is simpler in some households than others. If the debtor has variable income, relies on tips, etc., they should confirm their means test results with a skilled bankruptcy professional. After finding average monthly household income, the debtor should deduct certain expenses that are necessary for a reasonable standard of living. These include rent or mortgage, utilities, groceries, cleaning supplies and household products, insurance payments, health care costs, domestic obligations, back taxes, student loan payments, and more. Whatever is left is how much the debtor can pay into their plan each month. Multiply that by 36 (3 years) or 60 (5 years), and if it’s enough to pay off the first three categories of debt as described above, the debtor should be eligible to discharge their debts with chapter 13 bankruptcy. The length of the payment plan depends on how the debtor’s household income compares to Nevada’s state median household income.

Other Steps To a Chapter 13 Bankruptcy Filing

Before learning options for divorce during chapter 13 bankruptcy, it’s also important to understand how much work goes into a filing, as it may affect the course of action chosen. Besides confirming their eligibility through calculations and creating and filing a bankruptcy petition, some of a chapter 13 bankruptcy debtor’s other responsibilities include:

Completing an online credit counseling course before filing the bankruptcy petition
Attending a 341 Meeting of Creditors hearing
Attending a plan confirmation hearing
Making plan payments in a timely manner, potentially starting before the plan confirmation hearing
Complying with trustee requests throughout the case
Completing a second online credit counseling course within 60 days of the 341 Meeting of Creditors
Updating the trustee and modifying the payment plan for any significant changes in income

Addressing Divorce During Chapter 13

Filing for chapter 13 bankruptcy triggers the automatic stay, which is meant to protect assets from creditor collection efforts. But for spouses looking to get divorced, this also unfortunately results in their assets being frozen in such a way that it makes property division- one of the key components of divorce- impossible. If the couple is near the end of their payment plan, it may be worth it to wait it out and file for divorce after bankruptcy discharge. If there are still years remaining on the plan and divorce can’t wait, some of the couple’s options include:

Converting to chapter 7 bankruptcy: Splitting a household into two creates more expenses, and this change in circumstances may be enough that a couple that previously didn’t qualify for chapter 7 bankruptcy is now eligible. This option is best if the couple is primarily seeking to clear unsecured debts, and can wait 3 to 6 months for their bankruptcy to be discharged before pursuing divorce.
Modifying the chapter 13 plan: If a married couple wishes to separate before filing for divorce, they may be able to modify their chapter 13 plan so that it reflects their new situation but allows them to continue with their current bankruptcy plan. This may not be an option if the expenses of both households are too high for the couple to afford to pay off their mandatory debts.
Voluntarily dismissing the case: Chapter 13 bankruptcy debtors can voluntarily dismiss their cases and cease their plan payments. This allows them to file for divorce immediately after, and file their own separate bankruptcy cases afterwards, if necessary. It might not be necessary for one or both spouses, depending on their debt structure. However, this option can be unfavorable if the couple has already poured significant time and funds into their payment plan.
Sever the case: In some instances, the court will allow a married couple in chapter 13 bankruptcy to bifurcate into two separate cases. This way, each spouse can have their own attorney looking out for their separate interests. Here, each spouse will submit a proposed new payment plan to the court, and must be able to afford the plan based on their new household finances.

Henderson’s Leading Choice For Affordable & Reliable Bankruptcy Representation

About two-thirds of chapter 13 bankruptcy cases end in dismissal, whether that’s through a voluntary debtor action or due to mistakes in the petition and other steps of the bankruptcy process. This figure skyrockets to about 97% of chapter 13 cases dismissed when filed without an attorney. If you foresee divorce and other complications in the several years that your chapter 13 payment plan will last, it isn’t worth the risk to self-represent. But many debtors are so overwhelmed by their financial situations that they feel they don’t have the emotional or financial capacity to consult with bankruptcy attorneys about their situation. At Henderson Bankruptcy Lawyers, we understand just how stressful the process of considering and filing for bankruptcy can be. We offer free consultations by phone so you can learn more about your debt relief options from the comfort and privacy of your own home. To schedule your free consultation with an experienced Henderson bankruptcy attorney today, call 702-899-3328