Will divorce affect Chapter 13 bankruptcy

While married, the wife filed Chapter 13 bankruptcy.  Now she's getting divorced and that could have major consequences.

Attorney Tom Olsen: Ann, go ahead.

Ann: Yes, hi. I have been in a chapter 13 for a little over four years, about just shortly under a year ago. I'm married over 20 years. I filed just myself and just as so not to affect my husband and his credit and there's now the possibility of a divorce. I'm wondering how any kind of settlement would affect my bankruptcy.

Attorney Tom Olsen: Well, let's back up a little bit. Chapter 13 is a personal reorganization, where she four years ago arrived at who her creditors were and agreed to make payments over the next up to five years, is that right?

Attorney Jim Monroe: That's correct.

Attorney Tom Olsen: What's going on with Anne, she filed individually, which means that whatever debts she had, they were not her husband's debts as well.

Attorney Jim Monroe: I'm hoping they weren't her husband's joint debts because, of course, his side would not be discharged, only her side.

Attorney Tom Olsen: Then how will her divorce possibly affect that chapter 13?

Attorney Jim Monroe: Well, she would have to get a leave from the court to do certain things, like divide the property and other matters. If her joint income, if the joint income into the case is affected, she may find herself either modifying her plan of reorganization or converting to a chapter 7 just to get it over with. If the family income drops below a certain level, you can do that.

Attorney Tom Olsen: When Ann got her chapter 13, you mean they were factoring in what her husband's income as well?

Attorney Jim Monroe: Yes. If you're married, unless you are separated, they can do that. They take into consideration the income into the household.

Attorney Tom Olsen: Hey, Ann, are you still with us?

Ann: Yes.

Attorney Tom Olsen: If you did get divorced, do you think you would still be able to make your chapter 13 payments?

Ann: No, I would not. Right now, I work two part-time jobs, so I make significantly less than my husband. He's a business owner, also a property owner, other than our mutual home. There's money that I believe is due to me in a settlement. I would need then that money to live on and to find a place to live. That's why I'm asking if that comes across, that's basically my money they live on or is the court going to see that as, "No, we're taking that."?

Attorney Jim Monroe: Well, Ann, I'm going to ask you to go back, I assume you're represented by an attorney, is that correct?

Ann: Yes.

Attorney Jim Monroe: Okay. I think you need to call that attorney and sit down with him because your rights are going to be affected by the divorce and what is considered property of the bankruptcy estate might be affected by the divorce. It might be a strategy to attempt to convert to a chapter 7 or it might be better to remain in a 13, but you're going to have to carefully plan that out because you could find yourself in a difficult situation.

Attorney Tom Olsen: All right, by the way, if Ann finished her chapter 13 four years ago, is her bankruptcy attorney still her bankruptcy attorney or can she start from scratch from somewhere else?

Attorney Jim Monroe: Well, if she's in the middle of a 13, of course, the court regards her bankruptcy attorney as her bankruptcy attorney from beginning to the end of the case, but typically, when you receive your discharge either in a chapter 7 or in a chapter 13, unless there are other events going on, your legal representation ends with that client.

Attorney Tom Olsen: Okay. All right, folks, my name is Tom Olsen, the name of the show is Olsen On Law, every Saturday between 11:00 and noon, right here on News 96.5. My guest today is attorney Jim Monroe.