Getting Divorced During a NJ Chapter 13 Bankruptcy

The short answer is yes, but the complete answer is a bit more complex.

Chapter 13 is one of the most common types of bankruptcy, especially for individuals or couples. During Chapter 13 bankruptcy, you will pay back a portion of your debt over 3- to 5-years. But a lot can happen in 3 or 5 years. If your marriage unravels during that period and divorce is looming, you will need to devise a plan to continue your Chapter 13 payments. However, your Chapter 13 plan was created with your specific circumstances in mind, including your combined income, expenses, and assets as a married couple. After divorce, those specifics are likely to change.

How can you manage your Chapter 13 bankruptcy plan while going through a divorce? Here are a few tips:

1. Work Together
   The first option is to work with your spouse to continue making regular payments together. If you can attempt to view your relationship as a business partnership, you will both be better off financially when the marriage is officially terminated. However, we recognize that not all individuals in this situation will have a cooperative relationship with their soon-to-be ex-spouse. Consider asking your mediator, attorney, or accountant to sit down with you both to express how important it is to make the Chapter 13 payments. When the debt is repaid, you will both be better off financially as you start your new lives.
2. Modify Your Payment Plan
   A Chapter 13 modification will require you and your spouse to return to bankruptcy court. You will file a motion to modify your plan based on your new individual circumstances. Especially if your financial situation has drastically changed, you should be able to get your monthly payments lowered to account for your new circumstances. Keep in mind that the judge will only be able to adjust payments owed to unsecured creditors, like credit cards, medical bills, and personal loans.
3. Convert to Chapter 7
   If you could not qualify for Chapter 7 bankruptcy as a couple, you may qualify as an individual now that your combined income is effectively going towards maintaining two households. However, filing for Chapter 7 bankruptcy can further complicate your divorce in many ways. Discussing this option with an experienced bankruptcy attorney before making any decisions is a must.
4. Bifurcate the Bankruptcy
   It is possible to petition the court to split the bankruptcy into two separate bankruptcies. This will free you from having to make joint decisions concerning the debt so you can make choices that best suit your financial circumstances. Bifurcating the loan can look like lowering monthly payments for one individual, converting to Chapter 7 for one individual, or another modification that only impacts one of the parties involved.

If you are going through bankruptcy and considering divorce, it is critical to talk to legal experts who can guide you toward the best path forward. Veitengruber Law is a skilled New Jersey bankruptcy firm with years of experience helping clients simultaneously deal with divorce and bankruptcy. Our attorney can work with you to explore your options and determine your best choice.