How divorce affects a pending bankruptcy

Arizona residents may wonder whether it is possible to file for divorce after filing for bankruptcy or whether they should wait until the bankruptcy is discharged. With a Chapter 13 bankruptcy, spouses have two options. They can choose to convert to a Chapter 7 bankruptcy, or they can seek to convert their joint payment plan into two separate plans to reflect their change to two separate households.

When considering conversion to a Chapter 7 bankruptcy, the first step is to determine whether the spouses qualify. Often, Chapter 13 is chosen because household income is too high for a Chapter 7 filing. That means that the spouses will need to evaluate whether the increased expenses of two rent or mortgage payments and two sets of utility payments allow for the conversion. Spouses can also consider how the inability to share household expenses affects their total available funds. For those who are eligible, converting the Chapter 13 bankruptcy to a Chapter 7 is often beneficial.

When spouses do not qualify to convert the bankruptcy, they may seek to reduce the Chapter 13 payment plan. Payments based on unsecured debts such as credit card debts may often be modified to reflect increased expenses. Because the divorce impacts each spouse's monthly budget, it is considered a valid reason to seek a reduction in the monthly payment. However, payments for unpaid taxes, alimony, child support or delinquent mortgage payments may not be reduced.

When spouses decide to divorce during a Chapter 13 bankruptcy, a lawyer may be able to help determine whether they would qualify to convert to a Chapter 7 proceeding. When conversion is not possible, a lawyer may be able to help review income, expenses and debt payments or seek to reduce monthly payments.

Source: FOX Business, "Divorce During Chapter 13 Bankruptcy?", Justin Harelik, May 14, 2014

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