- When you file Chapter 13, you give the bankruptcy court a detailed account of your finances. The court will draw up a plan based on your disposable income--the money you don't need to live on--for paying back your creditors. The plan will run three years if your income is under the state median, five years otherwise. Your discharge comes after the plan wraps up, but debts such as student loans and your mortgage cannot be discharged in Chapter 13.
- If you divorce while going through Chapter 13, it may be necessary to modify your plan. If you included your spouse's income when figuring what payments you could afford, your post-divorce income may be low enough to justify reducing your monthly payments; if you make less than the state median, you may be also able to cut a five-year plan to three years. If you divorce before the court confirms the plan, it's relatively simple; after that, the court may scrutinize the request to make sure you're not trying to cheat your creditors.
- Bankruptcy law lists alimony and child support as priority debts that can't be discharged in Chapter 13. If the divorce leads to you having to pay alimony or child support, filing Chapter 13 won't get you off the hook. It may become necessary to modify your payment plan, as you will have an added debt. Failure to pay family-support obligations could give the court grounds to dismiss the bankruptcy, leaving you at the mercy of your creditors for your remaining debts.
- If you and your spouse filed a joint bankruptcy, you need to negotiate what happens after the divorce, dividing responsibility for the debts much as you do marital assets. If you can't come to an agreement, you may have to refile a separate plan covering only your own debt responsibility. Married couples aren't required to file together, but if you file separately to discharge your responsibility for joint debts, your creditors can hold your spouse liable for them.
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