Filing for Bankruptcy Prior to Filing for Divorce

Interviewer: If a married couple files for bankruptcy, either a Chapter 7 or a 13, and soon after filing they also file for divorce, are they both still responsible for the bankruptcy?

Both Parties Are Responsible for Payment in a Chapter 13 Bankruptcy If They Divorce

Vance: Absolutely. If they file a joint bankruptcy, in a Chapter 7, you're done in about five months from start to discharge. A Chapter 13 is three to five years long because you're on a payment plan. If you're in a Chapter 13 and you file for divorce, both couples will be liable for that Chapter 13 payment.

I've had times where I've amended clients' plans and taken that Chapter 13 payment because the trustee in Akron requires that the payments come out of a payroll deduction. I can amend the plan to have part coming out of the husband's check and part out of the wife's or the husband may negotiate that he'll take all the Chapter 13, but it will go against his spousal support that he may have to pay. There's a way to work around it, but yes, they are still liable for it.

A Bankruptcy Filing Remains on your Credit Report for 7 to 10 Years

Interviewer: A Chapter 13 takes three to five years, so how long do these stay on your credit report though?

Vance: They're on your credit report for seven to ten years.

Interviewer: That's for both Chapters, the filings?

Vance: But as I said, the recovery period is only about two to three years.

Now Chapter 13, if you're in a three to five year plan, the recovery period should not be over a year because that whole time you're in there, you're building your credit up even though you're in the bankruptcy.

Which Investments or Court-Ordered Payments Might Be Affected by a Bankruptcy Filing?

Interviewer: Now when you file bankruptcy, are any CDs, IRAs, anything like that, 401ks, are those affected?

Vance: Certificates of Deposit would be affected. Any retirement plans, IRA, 401k, pension is exempt.

Interviewer: What about if you're receiving child support? Is that exempt as well?

Vance: That's exempt also, yes. Now it does go into the calculation because income determines what kind of bankruptcy you can file, but child support does go into the calculation as far as household income.

Are There Income Limits on Filing a Chapter 7 or a Chapter 13 Bankruptcy?

Interviewer: What is the income limit to file for either Chapter 7 or 13?

The Median Income Limits for a Chapter 7 Bankruptcy Are Set Per Size of Household

Vance: It depends on household size. For example, in a two person household, the median income is about $52,000 a year. If you're above median, then there's a presumption that you're to file a Chapter 13 bankruptcy and pay back some of your debt. The median income does go up according to the size of the household. For a four person household, it's $70,000 a year.

If you're close to the median income, there's still a good chance I can get you into a Chapter 7. If you're a two person household and you're making in the median income and the amount is $52,000, if you're making 56 to 57, there's still a good chance I can get you into a Chapter 7. If you're making $65,000, that is too far over the limit.