chapter 13 & divorce

[missny]

advice about this situation would be greatly appreciated.

if you filed for joint bankruptcy in chapter 13 and one spouse has moved out of the house and we are divorcing could the spouse who moved out request in the divorce to have their name removed from the mortgage? also, do we still have to continue paying joint debts in our chapter 13 or are they dismissed? if not dismissed, then do we have to split our individual accured debt and remodify our BK chapter 13? this is in the state of ny. what happens if one spouse (the one who is curently not living in the home) decides to file for chpater 7? what happens to the other spouse who remains in the home? is there a chance that that spouse might lose the home because the BK payments are too much for the one spouse in a chapter 13?

thanks

[researchnerd]

I can help with a few of these...

- could the spouse who moved out request in the divorce to have their name removed from the mortgage?

Either party can request this in the divorce documents, and can then submit a quit claim deed for the house. HOWEVER, this is not binding on the mortgage lender and they will most likely not honor it. Whoever signed the mortgage documents will stay on the hook for the loan unless it is refinanced or foreclosed.

- do we still have to continue paying joint debts in our chapter 13 or are they dismissed?

Debts are not dismissed in Ch13, joint or otherwise. Depending on your disposable income, some may be paid at 0% (effectively dismissing) but will remain active until the plan is completed. If you don't complete your plan, the debts will still be there in full, plus interest.

- what happens if one spouse (the one who is curently not living in the home) decides to file for chpater 7? what happens to the other spouse who remains in the home?

In Ch7 the house is usually sold to help pay creditors, if there is equity in the home. That said, I don't think one spouse can unilaterally give up the home in a BK if both names are on the loan -- you'd have to both agree.

- is there a chance that that spouse might lose the home because the BK payments are too much for the one spouse in a chapter 13?

Yes. If your initial plan was based on two incomes, and now only one person is going to be contributing to the plan payments, your Ch13 plan will need to be modified to an affordable amount or converted to Ch7.

I highly, highly recommend you do not try to do a divorce and a bankruptcy at the same time. Even if you have a rock-star lawyer, it will be complicated and expensive at best. If you and your soon-to-be-ex cannot agree on everything it could be an enormous mess. Obviously you don't want to drag a divorce out for 5 years, but it may be worth closing your Ch13 case and then re-filing individually after the divorce is final.

[missny]

thank you for answering my questions. you made it easy to understand. i appreciate your response.

i just have a couple more in relation to the answers:

the house is worth about $250K from an evaluation in 2006 although we filed a chapter 13 in 2008. our home went into pre-forclosure because of missed mortgage payments. we are close to $10K in arrears on two mortgages. the value of our first mortgage is less than the value of the home so i know i can't strip the 2nd. although housing prices are dropping now so who knows what the house could be worth but i do know it will still be more than the first mortgage.

during our chapter 13 - in the first couple of months our case was almost dismissed because of failure to make payment. that has been rectified and the monthly mortgage amount to pay back was dropped a bit - not much.

now the ex has moved out. if we filed for divorce would it show on pacer that i or he had to get a new bk lawyer? from what i understand about divorce during a bk each spouse has to have their own bk lawyer. that will cost one of us more money right?

also, if we close the chapter 13 would we be penalized if we closed it to re-file individually? or would payments into the chapter be suspended for a period and made up later? would i be going back to creditors coming after me if i closed it for this reason of divorce?

also, what happens to the equity in the home? i live in the home now but obviously my ex would want his portion. its not much as our mortgage is $155K. so we had the $100K exemption available to us. if he wanted his portion out would i be able to refi or get a loan to pay him out? i don't think he is going to want to wait 3 more years for his money to help him move on. and finally, even if he signed the mortgage and deed over to me if he fails to pay his portion of the chapter 13 - if we don't get individual chapter 13's would the bank go back into foreclosure mode since we both signed for the mortgage when we initially received it? i love the house and want to stay here but we did file a chapter 13 on both our incomes. i make about $30K a year. if i had someone move in and help with the mortgage payments would their income need to be looked at as well?

my debt is more than his. even with the joint the debt of the mortgage and some loans mine is still more from my cc and additional loans over the year. i am just concerned that i will lose this house eventually.

thanks for your help. i really appreicate it.

[lrprn]

now the ex has moved out. if we filed for divorce would it show on pacer that i or he had to get a new bk lawyer?

If you do get a divorce, then it's likely that the 13 will have to be split also (although if you remain separated, it's possible to amend the current plan to accommodate his new living expenses living separately). It may even be possible to convert your side of the Ch 13 over to Ch 7 if you qualify. Your lawyer can explain what to expect with a separation and with a divorce.

I regret to say that separation and divorce during a 13 is all too common. The ongoing stress over a long five years can definitely take a toll on a relationship. Talk to your lawyer asap and see what needs to be done so you'll be prepared.

from what i understand about divorce during a bk each spouse has to have their own bk lawyer. that will cost one of us more money right?

I don't know if you can both keep the same bk lawyer after the divorce or not - it might be considered a conflict of interest. Hopefully one of our other mods or divorced members who have been through this same situation will share their experiences.

also, if we close the chapter 13 would we be penalized if we closed it to re-file individually? or would payments into the chapter be suspended for a period and made up later? would i be going back to creditors coming after me if i closed it for this reason of divorce?

If by "close" you mean voluntarily dismiss your 13, then all the creditors listed will come roaring back into life. Not only will you both owe everything you owed when you filed, but the creditors are allowed to charge late fees and penalties as well.

Even if the reason for your 13's dismissal is divorce, the creditors don't care. If one or both of you owe the money, the creditors will be coming hard after whoever is legally responsible for the debt.

The best thing you can do right now is to inform your lawyer about what's going on and find out what you and your spouse's options are regarding the 13. Work from facts, not guesses.

also, what happens to the equity in the home? ... if he wanted his portion out would i be able to refi or get a loan to pay him out?

Again, this isn't predictable. Divorce and bankruptcy make for uneasy partners in most states. There are conflicts in the common property is treated sometimes - some states will favor the divorce statutes and some will favor the bankruptcy statutes. Again, your lawyer is the best source of reliable information about what could happen to the house equity and deed if you divorce.

... if we don't get individual chapter 13's would the bank go back into foreclosure mode since we both signed for the mortgage when we initially received it?

If the 13 remains intact or is amended to split it, the automatic stay remains in place. The bank can't go back into foreclosure mode.

Voluntarily dismiss your 13 and the bank can most certainly start foreclosure actions up again.

if i had someone move in and help with the mortgage payments would their income need to be looked at as well?

If your 13 is amended and at the time of filing you had a roommate living in the house, then yes, their income that regularly goes towards supporting the household (for ex, if they pay rent, pay a utility bill, or buy groceries) is counted into your income figures. Only the income that regularly goes towards supporting the household counts in though.

my debt is more than his. even with the joint the debt of the mortgage and some loans mine is still more from my cc and additional loans over the year. i am just concerned that i will lose this house eventually.

You're already realizing that you likely don't have the income to keep this house without a roommate. You filed Ch 13 to get a fresh start. Don't allow an emotional attachment to the house to prevent you from doing what's best for yourself (and any children) in the long-term.

A house is just a thing - it can be replaced. Your peace of mind and having a great deal less stress in your life is far more important than a house.

Call your lawyer on Monday and share that divorce is a real possibility. Set up time to discuss what your options are if you two are separated or if a divorce is granted. Be prepared to take whatever legal steps are necessary to protect yourself in this unfortunate and sad situation.

[missny]

thank you very much for answering my questions. you were very helpful and i appreciate it.