If you are in the midst of a Chapter 13 bankruptcy plan and you find yourself facing a divorce, you don’t want to add to the emotional stress with financial stress that can be avoided. Divorce typically comes with some major financial changes: two households instead of one, spousal maintenance, child support payments, etc. These major financial changes seem to be an unavoidable and insurmountable roadblock to the progress you’ve made to improve your financial future through Chapter 13 bankruptcy. Instead of immediately deciding that your Chapter 13 bankruptcy plan is going to be destroyed because of your divorce, take action to prevent any problems. In a previous issue, we discussed how this situation could mean you are eligible for a reduction in the amount of your Chapter 13 plan monthly payment. But we also mentioned that this situation left you with two options. The second option is to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy. How do you know if you are eligible to convert your Chapter 13 to a Chapter 7?
Many bankruptcy petitioners turn to Chapter 13 bankruptcy because they have little to no assets, but their income is too high to qualify for a Chapter 7 bankruptcy. In other cases, the Chapter 13 was the bankruptcy of choice because the bankruptcy petitioner had filed a Chapter 7 already in the eight years prior to their new filing. But this reason is far less common – in most cases of Chapter 13 bankruptcy it is a case of little or no assets combined with high income.
With the impending divorce resulting in two households instead of one to pay for and maintain, the expenses associated with the bankruptcy have doubled. There are now two rent payments, two utility payments, increased costs for food and miscellaneous other household expenses because they are no longer shared. This drastic increase in expenses could allow you to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy and walk away from your debt. First thing, have your budget assessed for a Chapter 7 bankruptcy. If you already have a bankruptcy attorney, they will need to review the last 6 months of pay history as well as a workup of your current monthly expenses.
Ideally, you can covert to the Chapter 7 and more forward with the divorce at the same time without any problems. It’s possible to get them both done around the same time and simply move on with a clean slate afterward. If you have questions about converting your Chapter 13 bankruptcy to a Chapter 7 bankruptcy, please get in touch with the southern California bankruptcy lawyers at Westgate Law.