Can A Married Couple Divorce & File For Bankruptcy Simultaneously In Arizona? 

While chapter 7 bankruptcy is the most common form of consumer bankruptcy, chapter 13 bankruptcy provides debtors with another effective debt relief option. Instead of wiping away unsecured debts, chapter 13 reorganizes all types of debts- including secured and priority debts- into a payment plan. This payment plan is specifically tailored to the debtor’s financial situation, taking into account their monthly income and reasonable expenses. It can even create a chance for the debtor to erase unsecured debts if they are able to pay off the rest of their debts in their payment plan. But chapter 13 bankruptcy lasts 3 or 5 years, depending on how the debtor’s household income compares to their state’s median household income. This requires quite a bit of stability, including in a debtor’s marital status. Bankruptcy’s automatic stay, which freezes assets, also interferes with property division and other aspects of the divorce process. So if you’re in a chapter 13 case and looking to get divorced, or considering filing both types of legal petitions, you need a legal strategy that will allow you to execute your goals as efficiently as possible. Our Arizona bankruptcy team can help you do just that, with little to no money down. Schedule your free consultation today by calling 480-833-8000. 

Why Divorce & Bankruptcy Don’t Mix

Divorce and bankruptcy are two separate legal procedures that encompass almost every aspect of the litigants’ lives. Bankruptcy limits a debtor’s ability to divide assets, buy a home, and engage in other important financial transactions. Divorce involves the division of assets, child custody, and potential years of support payments. This makes it extremely difficult to divorce while in an active bankruptcy case, especially if that bankruptcy case is a chapter 13 payment plan. 

Marriage can play a huge role in what a chapter 13 bankruptcy plan looks like. The number of members of a household affects the applicable median income, which determines whether a chapter 13 payment plan lasts 3 or 5 years. Whether both spouses are breadwinners or if one is a homemaker can also have a huge impact on how long a chapter 13 payment plan lasts, and if the couple qualifies for chapter 13 bankruptcy in the first place, as the plan must pay off at least bankruptcy fees, secured debts, and priority debts in full. 

Filing For Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the second most common form of consumer bankruptcy, following chapter 7 bankruptcy. It also has a much higher dismissal rate than chapter 7 bankruptcy, particularly when a debtor files for chapter 13 bankruptcy without attorney representation. One reason for this is that there is a significant amount of calculation that must be done to formulate a chapter 13 payment plan. Household income needs to be calculated correctly so it can be compared to the state median household income to determine how long the payment plan should last. Monthly expenses need to be calculated correctly so the debtor knows how much disposable income they have to pay towards their payment plan each month. Debts need to be summed accurately so the debtor can know they have enough income coming in to complete their payment plan. Mistakes in any of these calculations and more can result in an unviable chapter 13 bankruptcy filing. 

When a married person wants to file for bankruptcy, they can either file as an individual or include their spouse in a joint bankruptcy filing. This can be a deliberation in chapter 7 bankruptcy, but it is uncommon to see a married person file an individual chapter 13 bankruptcy petition. The non-debtor’s spouse would still be included in many of the calculations for the payment plan, and their spouse would not be able to contribute to financial expenditures besides reasonable necessities for however many years the payment plan lasts. These are huge disadvantages for a spouse who won’t even have their debts discharged at the end of it all if the case goes according to plan. 

Once all the issues discussed above have been resolved, it will give a chapter 13 debtor a better idea of what their case would be like. Plans last 3 years for those earning less than the state median household income, and 5 years for those who earn more. The debtor must have enough disposable income to pay off bankruptcy costs, secured debts, and priority debts within the applicable time frame. If that is possible, unsecured debts are paid as much as the disposable income allows, with any remaining balance cleared when the case is discharged. 

Filing for bankruptcy requires the debtor to prepare a bankruptcy petition, a detailed and lengthy legal document. This includes the creditor mailing matrix, a list of all the creditors who must be notified of the bankruptcy filing. The debtor(s) must complete an online credit counseling course before filing the bankruptcy petition. After filing, the debtor must comply with trustee requests while preparing for the 341 Meeting of Creditors. The debtor has 60 days to complete a second credit counseling course after that hearing. A chapter 13 debtor must also attend a plan confirmation hearing. After completing all of these steps, the debtor must make their plan payments in a timely manner for the 3-5 year lifespan of their case. Does this sound overwhelming? Let an experienced bankruptcy lawyer guide you through the ins and outs of your potential chapter 13 case. Schedule your free consultation with our firm today by calling 480-833-8000. 

Solutions For When Divorce Can’t Wait

Chapter 13 can lock a married couple into a court-supervised payment plan lasting 3 or 5 years. This makes divorce infeasible, but sometimes filing for divorce can’t be put off for a few more years. There are a few possible ways to deal with an active chapter 13 case under these circumstances:

• Modify the plan to reflect any changes in household income, as well as expenses from splitting into two separate households and any spousal or child support orders. 
• Serve the case into two separate bankruptcy cases. This allows the couple to proceed with chapter 13 bankruptcy separately and also execute a dissolution of marriage. 
• Convert the case into a chapter 7 bankruptcy case. If the spouses continue with a joint case, they won’t be able to divorce until it has been discharged, but this occurs within months instead of years. The spouses may also be able to convert into two separate chapter 7 cases. 
• Dismiss the joint chapter 13 case, file for divorce, and re-file after the divorce has been finalized, if necessary. 

Weigh Your Options With An Experienced Arizona Bankruptcy Lawyer

If you’re married and considering chapter 13 bankruptcy, you should inform yourself about what could happen if you want to get divorced during your payment plan. Filing for chapter 13 bankruptcy already has a high failure rate without adding in special factors like divorce. But our team of Arizona Bankruptcy Attorneys makes the process as simple as possible, utilizing experience and dedication to our clients’ cases to achieve the best results. We also offer flexible payment options and free consultations by phone to get started. If you’re ready to take the first step in your debt relief journey, call 480-833-8000 for your free Arizona bankruptcy consultation.