The divorce process can cause both spouses to experience financial difficulties. Finding new living arrangements and making adjustments to budgets will usually be necessary, and each spouse will need to determine how they will be able to support themselves on a single income. This process can be even more difficult if a couple has significant debts. In these cases, one or both spouses may be considering filing for bankruptcy, but when doing so, they will need to understand their options and the complications that may arise.
Chapter 7 Vs. Chapter 13 Bankruptcy and Divorce
Decisions about whether to file bankruptcy before, during, or after divorce will often depend on the type of bankruptcy a person or couple plans to pursue. While Chapter 7 bankruptcy will allow most debts to be eliminated, a couple may not qualify for this form of relief if they do not pass the means test because their combined income exceeds the median income in their area. For those who do qualify, completing a Chapter 7 bankruptcy before filing for divorce may be a good solution for addressing joint debts, and it may put both parties in a better financial position as they work to complete the divorce process. Either spouse may also choose to pursue an individual Chapter 7 case after completing their divorce.
If Chapter 7 is not an option, Chapter 13 bankruptcy may be available. In these cases, a debtor will propose a repayment plan in which he or she will make monthly payments for a period of three to five years. Because of this, Chapter 13 is usually not a good solution for spouses who are planning to get a divorce. If a couple had previously filed a joint Chapter 13 case and have a repayment plan in place, they will need to determine how to handle this plan after their divorce. In some cases, a bankruptcy may be “severed,” creating individual repayment plans for each spouse, while in others, a Chapter 13 case may be converted to a Chapter 7 bankruptcy for one or both spouses.
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