When a couple seeks a divorce in New York, they may not consider how the action might affect a standing bankruptcy repayment plan. However, for those who are currently taking part in a Chapter 13 debt reorganization plan, it is important to understand how filing for or finalizing a divorce can affect how the debt is handled.

In most Chapter 13 bankruptcy cases, the amount that debtors pay to their creditors each month depends on a household’s current expenses and income. When a couple divorces, a filer’s monthly expenses might increase dramatically. When this occurs, the individual who is making the payments may be able to ask for a modification to the standing bankruptcy payment plan. While some of the debts, including a delinquent mortgage, may not be modified, repayments on unsecured debts, such as credit card balances, can be lowered to match the debtor’s current income and expenses.

Depending on how much an individual makes after a divorce, it may be possible to convert Chapter 13 bankruptcy into Chapter 7 bankruptcy. Because of the increase in costs stemming from supporting two different households after the divorce occurs, the filer’s financial situation may make them eligible for the discharge of debts offered by Chapter 7.

Certain shocks to a household’s financial situation, such as a divorce or an unexpected medical emergency, may make it possible for a person to seek changes to a standing bankruptcy agreement. Talking to a bankruptcy attorney may help someone dealing with such events during a bankruptcy. The attorney may be able help a client understand how certain modifications may be beneficial to his or her financial future.

Source: FOX Business, “Divorce During Chapter 13 Bankruptcy?”, Justin Harelik, May 14, 2014