What Happens If I File For Divorce During Chapter 13 Bankruptcy In Las Vegas, Nevada?
About half of marriages in the United States end in divorce, and one of the top reasons for this is financial issues. Some couples fight over assets in property division, while others have the unfortunate task of divvying up debts. When a married couple struggles with debt, they have the option to file for bankruptcy jointly or individually. However, filing an individual chapter 13 bankruptcy as a married person comes with complications. A successful chapter 13 bankruptcy case is a commitment of 3 or 5 years. A chapter 13 bankruptcy should be planned even more carefully if there is a possibility of divorce on the horizon. To discuss how these issues pertain to your unique situation, call 702-370-0155 to schedule your free consultation with Las Vegas Bankruptcy Lawyers.
How Divorce & Chapter 13 Bankruptcy Interact
Proceeding with divorce and chapter 13 bankruptcy at the same time can be a complex case issue. Las Vegas chapter 13 bankruptcy lawyers can help guide you through these challenges. Chapter 13 bankruptcy lasts for 3 or 5 years, protecting debtors from creditors with the automatic stay the whole time. The automatic stay freezes assets in a way that makes it difficult to divide them in property division. Another issue is that all of a household’s disposable income is paid into chapter 13 bankruptcy plans. Divorcing will significantly impact the payment arrangement, and in many cases, so much so that the spouses will no longer qualify for their plan. If the spouses separate households, living expenses could increase by double or more, leaving less income to pay off mandatory chapter 13 debts. One of the spouses could be ordered to pay child support or spousal maintenance, amplifying this effect further. If there was enough disposable income to support two households and make chapter 13 plan payments, the couple probably wouldn’t be declaring bankruptcy in the first place.
What Are the Options For Divorce During Chapter 13?
Unless a married couple is in the rare situation where they can afford to split households and continue with a chapter 13 payment plan, the plan must be changed in some way to keep the bankruptcy and protections from the automatic stay in good standing. There are a variety of methods a married couple can use to transition from their chapter 13 bankruptcy case due to divorce, such as:
- Converting to chapter 7: In some cases, chapter 13 bankruptcy debtors can convert their cases into chapter 7 bankruptcy cases with the help of a skilled chapter 7 Bankruptcy lawyer. Some married chapter 13 debtors are able to qualify for chapter 7 bankruptcy after splitting into two households. But this method is only effective if the debtors are primarily seeking to rid themselves of unsecured debt. Chapter 7 bankruptcy doesn’t pay off secured debts or discharge priority debts. The chapter 13 case can either be converted to one joint chapter 7 case or two separate chapter 7 cases. This also speeds up how long assets are tied up by the automatic stay, as chapter 7 bankruptcy is completed in a matter of months rather than years.
- Dismiss the case: Chapter 13 bankruptcy debtors have the option to voluntarily dismiss their cases. How attractive this option will depend on how long the married couple has been in their payment plan, and how urgent it is for them to file for divorce. All debts that haven’t been paid will remain if a chapter 13 bankruptcy case is dismissed, eliminating the possibility of clearing some or all of the couple’s unsecured non-priority debts. But if the couple has only recently entered their payment plan, dismissing the case allows them to get divorced first and separately clear debts through bankruptcy later.
- Modify the chapter 13 plan: A chapter 13 bankruptcy plan can be modified after a significant change in financial circumstances if the debtors can still pay off all of their mandatory debts with the modification. For example, the couple’s new income level could qualify them for a 3-year payment plan instead of a 5-year payment plan.
Domestic Obligations & Chapter 13 Bankruptcy
Domestic obligations, i.e., spousal maintenance and child support, can become a pivotal issue in divorce. Child support can carry on until all children in common reach adulthood, and spousal maintenance could be ordered for a term of several years or even for life. There are many avenues that can be used when pursuing someone with unpaid domestic obligations. One of those is by imposing a wage garnishment, which automatically sends the recipient payment with each pay period. There are certain limits in place for what percentage of wages can be garnished for different types of debts. The highest limits are typically reserved for child support wage garnishments, particularly late child support. If the parent has a dependent not named in their child support order, the wage garnishment limit is 50% of their income. This increases to 60% if the parent has no other dependents, with an additional 5% tacked on if they are 12 weeks or more behind on payments. Some debtors consider bankruptcy with the aim of stopping a child support wage garnishment. It is important to remember here that only a fully paid chapter 13 bankruptcy filing can stop a child support wage garnishment- filing for chapter 7 bankruptcy does not stop a child support wage garnishment.
Community & Separate Debts
What a couple looking to divorce during chapter 13 bankruptcy should do can depend on whether the debts in question are community property or separate property. Nevada is a community property state, so assets and debts acquired during a marriage belong to both spouses equally, even if only one spouse’s name is on them. Debts acquired before getting married belong to that spouse individually, as do debts acquired after a petition for divorce, separation, etc., has been filed. So if a married couple filed for bankruptcy jointly but the debts are mostly one spouse’s separate property, and they decide to get divorced, it may be preferable to proceed in some way that leaves the non-debtor spouse out of the bankruptcy.
A unique problem can present itself if one spouse drops out of a joint bankruptcy meant to discharge community property debt. Here, the debt would only be discharged for the debtor spouse, and not the spouse who has been severed from the chapter 13 bankruptcy case. After the case has been discharged, the creditor could still go after the non-debtor spouse for community property obligations that have not been cleared in their name.
Can’t Decide What To Do About Your Situation? Schedule Your Free Consultation With Las Vegas Bankruptcy Lawyers
Debt and divorce can sometimes be a chicken and the egg scenario. Regardless if relationship or financial issues came first, there are several considerations that should be factored into decisions about bankruptcy and divorce. This becomes even more complex if the couple is in an active chapter 13 bankruptcy case, as opposed to a chapter 7 bankruptcy case. But that doesn’t mean you should put off either type of filing without seeking guidance from an experienced attorney. Our Nevada bankruptcy firm offers free consultations by phone and flexible payment plan options that make it more affordable to file. When you’re ready to get started, call 702-370-0155.
Las Vegas Bankruptcy Lawyers
LAS VEGAS
7251 W Lake Mead BLVD #300
Las Vegas, NV89128
Office: 702-879-2499
Email: [email protected]
HENDERSON
1489 W Warm Springs Rd. Ste 110
Henderson, NV 89014
Email: [email protected]
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