Dear Bankruptcy Adviser,
My spouse wants a divorce. We are in a Chapter 13 bankruptcy plan. It would have to be revised and accepted to provide alimony. The original plan is for four years with no extra money to spare, requiring me to work seven days a week to assure timely payments. The question is: Will the Chapter 13 trustee revise the plan to compensate my spouse for separate living expenses and alimony, which will make the current plan impossible to succeed? We have 13 years of marriage, no assets and no children. I absorbed all marital debt into the plan.
You have two options at this point. The first is to reduce the Chapter 13 plan payment to reflect the two separate households and the second is to convert to a Chapter 7 bankruptcy.
Can you reduce the Chapter 13 plan payment?
This is a relatively straightforward process in most cases. Without knowing the specifics of your case, you probably are eligible to lower your Chapter 13 payment.
In some cases, the Chapter 13 plan is based on what you are paying back. You may not be eligible to lower the payment when paying back such things as delinquent mortgage payments, IRS or state tax debt or unpaid child support/alimony arrearages. These amounts are fixed and generally cannot be reduced. If these are the types of debts you are paying, you may not be able to reduce the payment.
In most Chapter 13 bankruptcy cases, you are paying back unsecured credit cards or loans. The payment plan established at the time of filing can be modified to reflect current expenses. For example, some people have a medical issue arise after filing. That issue requires a monthly payment to a hospital or physician for treatment.
A divorce also causes the same jolt to the monthly budget and is a legitimate reason to reduce the monthly payment.
Can you convert to a Chapter 7 bankruptcy?
You state that you have no assets. When you have little to no assets, this usually means your income was too high to qualify for a Chapter 7 bankruptcy. It could also mean you had filed another Chapter 7 in the eight years prior to filing the Chapter 13, but usually it is an income issue.
Your household expenses have now doubled with the separation and pending divorce: two rental payments, two sets of utility payments and no more sharing of expenses like food and miscellaneous household expenses.
These are all excellent reasons to convert to a Chapter 7 and walk away from your debt. You need to have your budget assessed for the Chapter 7. If you are working with an attorney, he or she will need to review the past six months of pay stubs and current monthly expenses.
Ideally you can convert to the Chapter 7 and move forward with your divorce simultaneously. Both could be done around the same time and you can move on.
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Copyright 2014, Bankrate Inc.