How Does A Divorce In Los Angeles Affect My Chapter 13 Bankruptcy?

---

Should I Notify My Bankruptcy Attorney In Los Angeles If I Plan To File For Divorce?

If you’re considering divorce or any major life change that could affect your ability to make Chapter 13 plan payments, you should notify your bankruptcy attorney as soon as possible. Divorce can directly affect your bankruptcy case in several critical ways, including:

• Asset Division: The automatic stay in bankruptcy prevents the division of property in the bankruptcy estate without court approval.
• Case Strategy: You and your spouse will need to decide whether to continue the Chapter 13 case together or request the court to sever the case into two separate filings.
• Impact Existing Legal Representation: If your interests diverge after separation, your current attorney must withdraw due to a conflict of interest. Each of you will then need separate legal counsel.

Don’t wait until problems arise. A quick call or email to your attorney early on can make all the difference in ensuring you steer clear of the many pitfalls that can make things much more difficult than they need to be.

Can My Chapter 13 Bankruptcy Case Be Separated From My Spouse’s If We Divorce In Los Angeles?

Joint Chapter 13 bankruptcy cases can be severed, though this is not very common. This is largely because the process can be incredibly complex.

Under the Bankruptcy Code (specifically Section 302), married couples can file a joint case under any chapter, including Chapter 13, using a single petition. However, only legally married spouses are eligible to file jointly. Domestic partners cannot file together under the same petition.

If the couple decides to divorce, separate, or pursue different financial goals during the bankruptcy case, they can request the court to sever the case, which would effectively split the joint filing into two separate individual Chapter 13 cases. Some reasons for requesting to sever the case include:

• One spouse wants to convert to Chapter 7 while the other continues with Chapter 13. This only makes sense if the couple is separating because of the community property nature of both spouse’s income.
• One spouse wants to dismiss the case while the other continues.
• The couple is separating and can no longer cooperate within the joint plan.

Severing a Chapter 13 case introduces challenges. Here are three:

First, if a single attorney has been representing both spouses in the Chapter 13 case, and the spouses’ interests diverge, that attorney must withdraw due to a conflict of interest. The spouses will each need to find separate counsel.

Second, since spouses are jointly and severally liable for their debts, and since severing the case does not alter that liability, the two severed cases must deal with the full obligations.

Third, the automatic stay prevents the division of property from the estate. To divide property in family court, the spouses must request relief from the stay.

Severing a Chapter 13 case is undoubtedly possible, but it can be quite cumbersome and may lead to additional legal and financial complications. In most cases, if you and your spouse can be civil, it may be easier and more cost-effective to complete the original joint plan together. Unfortunately, since some relationships degenerate into a dog and a cat in a burlap bag scenario, severing may be necessary.

How Does Divorce Impact Joint Debts In A Chapter 13 Bankruptcy Case In Los Angeles?

In community property states like California, assets fall into three categories, namely, each spouse’s separate property and their shared community property. Separate property includes anything a spouse brought into the marriage or inherited. Wages earned during the marriage, as well as anything bought with them, are considered community property. For example, if one spouse buys a car using marital income, the car is community property, even if only the purchasing spouse’s name is on the title. This distinction becomes important in two key situations: divorce and debt.

One step in a divorce is the division of assets: The spouses keep their separate property, and the community property is divided 50/50. The 50/50 determination is done either through negotiation, or in a particularly acrimonious dissolution, by the divorce judge.

If one spouse incurs debt during the marriage, even without the other’s involvement, creditors can go after the debtor spouse’s separate property, as well as all, not just 50% of the couple’s community property. However, they can’t touch the nondebtor spouse’s separate property. Why can the creditors go after all of the community property? Because (anthropomorphizing the law) the law has determined that it is an undue burden on the creditors to determine which half of the community property belongs to the debtor spouse.

This community property/separate property distinction plays a significant role in bankruptcy. If only one spouse files, the Court must still consider both spouses’ income, debts, and community assets. Therefore, the nonfiling spouse’s financial info must be included since community property is liable for all the debts.

If you filed a joint Chapter 13 case, both you and your spouse are responsible for plan payments, even after your divorce concludes, unless the case is severed and restructured into separate filings.

Can Child Support Or Alimony Payments Affect My Chapter 13 Repayment Plan In Los Angeles?

Domestic support obligations like child support and alimony can have a major impact on your Chapter 13 repayment plan. While most unsecured debts like credit cards or medical bills are paid only if funds are available, domestic support is treated differently. Under the Bankruptcy Code Section 507(a), these obligations are considered priority debts, meaning they must be paid in full over the course of your plan, even if other creditors receive little or nothing.

If you’re behind on support payments, known as an arrearage, your plan must include a full repayment of that amount. Otherwise, the court cannot confirm the plan, and your case may be dismissed. In some cases, attorney’s fees related to divorce or child custody disputes may be classified as domestic support. If so, those fees must also be paid in full through the plan.

If you owe back child support or alimony, your repayment plan must account for it in full, regardless of your ability to pay other debts.

How Do I Handle Property Division If I’m In Chapter 13 And Getting Divorced?

If you’re going through a divorce during a Chapter 13 bankruptcy, it’s important to understand how the automatic stay affects what the family court can and can’t do. The automatic stay, outlined in Section 362 of the Bankruptcy Code, halts most legal actions once a bankruptcy is filed. However, it does not apply to everything. Here’s a slightly more digestible way of how it all breaks down:

Not Stayed

The divorce itself and peripheral issues like child custody or spousal support can move forward in family court without needing bankruptcy court approval.

Stayed

The division of property, specifically assets that are part of the bankruptcy estate, cannot be finalized without the Bankruptcy Court lifting the stay.

Prior to filing a bankruptcy petition, you have assets i.e., your possessions and debts. The act of filing a petition creates a bankruptcy estate, and the debts become claims against that estate. The estate consists of all your assets, minus your exempt assets (determined by appealing to the appropriate exemption table). The aggregate value of your nonexempt assets is one of three factors we use to determine how much you must pay your creditors over the life of your Chapter 13 plan. To be a bit more precise, the minimum you can get away with paying your creditors over the life of the plan is the amount they would have received in a Chapter 7 liquidation case. Therefore, the division of those assets in a divorce proceeding is stayed until the bankruptcy judge lifts the stay for that specific purpose.

Property division may not be necessary if you have no significant assets. But if assets are in dispute, you must move the Bankruptcy Court to lift the stay before the family court can proceed with dividing them.

Can I Modify My Repayment Plan If My Financial Situation Changes After Divorce?

If your financial situation changes during the pendency of your Chapter 13 plan, for example, you lose your spouse’s income contribution because of divorce, you may be able to modify your plan to lower your payments. However, the modified plan must still meet the Chapter 7 liquidation requirement: You must pay your creditors at least what they would have received in a Chapter 7 case.

The Bankruptcy Court will typically grant a motion to modify your plan if you can establish with admissible evidence that you income has decreased, or your expenses have increased. Of course, the Court will not simply take your word. You must attach, as exhibits to the motion, recent pay stubs and documentation of increased (legitimate) expenses.

Finally, if your income goes up, the Chapter 13 Trustee may move the Court to increase your payments. The Trustee will learn of your increased income by reviewing your annual tax returns.

Will The Bankruptcy Court Require A New Repayment Calculation After A Divorce?

Divorce will probably produce a significant change in your financial circumstances. Any time your financial circumstances change to the point that you must modify your plan, you must recalculate your repayment plan.

If you or your spouse request to modify the plan, sever a joint plan, or suspend plan payments, the Bankruptcy Court will require documentation to justify the change, especially if you’re asking to lower the monthly payment amount. Acceptable types of documentation include:

• Recent pay stubs
• A clear income and expense analysis
• Updated calculations showing how the plan will be affected

Bankruptcy judges rely on admissible documentation, rather than verbal claims. Even sworn statements from debtors and creditors carry less weight than clear, verifiable financial records. As one well-known judge put it: The documents speak louder than the parties. So, if you’re pursuing any post-divorce plan adjustments, be prepared to back it up with solid numbers and supporting documents.

A Note on Jurisdiction and Legal Advice

While the Bankruptcy Code is a federal statute that applies nationwide, how it’s interpreted varies from district to district and circuit to circuit. Thus, even if the general principles discussed here are helpful, the specifics might play out very differently depending on where you live.

Nicholas Gebelt is licensed to practice law only in California. And we limit our practice to the Central District of California, handling primarily Santa Ana and Los Angeles cases. If you’re watching our videos, or reading our posts, from somewhere else in the country, we cannot represent you. Moreover, this content is not legal advice. For legal guidance, you must consult an attorney who is licensed in your jurisdiction.

We’re nonetheless glad the information here has been useful to you, and we sincerely appreciate your interest in learning more about how bankruptcy works.

Still Have Questions? Ready To Get Started?

For more information on divorce and Chapter 13 bankruptcy in Los Angeles, a free initial consultation is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.