Facing a divorce while dealing with Chapter 13 bankruptcy can create one of the most challenging financial situations that a family can face. At Duncan Bankruptcy Law in Augusta, GA, we have helped thousands of clients navigate these complex circumstances through our 10,000+ cases. Understanding how these two processes interact is essential for protecting your financial future.
When Two Financial Crises Collide
Divorce and bankruptcy are often linked. Financial stress that can lead to bankruptcy can also cause marital problems. The costs of divorce can push struggling families into financial difficulties. When you are already on a Chapter 13 repayment plan and go through the divorce proceedings, conflicting demands on your income arise.
Under Chapter 13 of the US Bankruptcy Code, individuals commit to a three-to-five-year repayment plan based on their disposable income. However, divorce introduces additional financial obligations, such as spousal and child support, the division of assets and debts, and separate household expenses, which do not simply disappear when someone files for bankruptcy.
Priority Status of Domestic Support Obligations
One important aspect that many people may not be aware of is that domestic support obligations have priority status in bankruptcy proceedings. This means that child and spousal support payments must be made in full through a Chapter 13 bankruptcy plan before other creditors can receive any payments. According to 11 U.S.C. § 1322(a)(2) of the U.S. Code, your Chapter 13 plan should provide for the full payment of these domestic support obligations.
This priority status actually works in your favor if you are the recipient of support payments. If your ex-spouse files for bankruptcy under Chapter 13, they may not be able to discharge child support or alimony payments. These debts will survive bankruptcy and will need to be paid.
Modifying Your Chapter 13 Plan During Divorce
If you are already in chapter 13 bankruptcy proceedings and divorce begins, you may need to modify your payment plan. The bankruptcy code allows for plan changes if circumstances significantly change, and divorce definitely qualifies as such a change.
Your disposable income can change dramatically during and after a divorce. You may have child support or alimony payments that reduce your income, or you may receive payments that increase it. In addition, you will transition from supporting one household to managing two separate residences, which can significantly impact your budget.
Filing Chapter 13 After Divorce
Many people find themselves in need of bankruptcy protection after their divorce is finalized. Legal fees, the costs of setting up a separate household, and taking on debt obligations as part of a property settlement can all lead to the need for Chapter 13 bankruptcy to start over.
Filing Chapter 13 bankruptcy after a divorce offers several benefits. You can create a repayment plan based on your new income and expenses. If you have been assigned certain debts in the divorce settlement, Chapter 13 can help you manage those obligations. However, keep in mind that if your former spouse was a co-signer on any accounts you are discharging, creditors may still pursue them for payment, unless they also file for bankruptcy.
Protecting Your Assets Through Divorce and Bankruptcy
Georgia’s bankruptcy laws allow you to protect certain assets, even if you are in Chapter 13 bankruptcy. This is especially important during divorce, as it is crucial to protect your exempt property. Our team has extensive experience helping clients understand which assets can be kept and how to structure their divorce settlement and bankruptcy plan to maximize asset protection.
The Automatic Stay and Divorce Proceedings
When you file for Chapter 13 bankruptcy, an automatic stay is placed that immediately stops most collection activities. However, this does not prevent divorce proceedings or actions to establish or modify child support and spousal support. Your divorce can continue even while you are in bankruptcy, but financial aspects may become more complicated.
Getting Professional Help in Augusta
At Duncan Bankruptcy Law, we specialize in bankruptcy law, debt settlement, and student loan matters. This expertise allows us to understand how divorce and Chapter 13 bankruptcy interact and provides guidance necessary for successfully navigating both processes.
We offer some of the most competitive fees in the area, with flexible payment options. Your initial consultation is absolutely free. If you are facing the difficult challenge of divorce and financial stress, contact us today to find out how Chapter 13 bankruptcy can help you manage your financial obligations and create a fresh start for yourself.
