Using Bankruptcy to Discharge “Non-Support” Debts to an Ex-Spouse
In a Chapter 7 bankruptcy, you are allowed to discharge certain debts. “Domestic Support obligations”, e.g. child support, alimony and spousal support cannot be discharged in either a Chapter 7 or Chapter 13 case. But what about “non-support” debts to your ex-spouse, such as your obligation to pay money as part of equitable distribution of property in a marital property agreement or divorce judgment?
In a Chapter 7 case, any debt or obligation incurred as part of a divorce or separation judgment or agreement is not dischargeable, so long as the debt is due or payable to a spouse, former spouse or child. A debt owed to the spouse’s attorney for counsel fees also fits into this category. However, money you owe your own attorney can be discharged.
Frequently, marital agreements will provide that one person will pay or satisfy joint credit card or other debts that are the spouse’s obligation. These provisions can convert what otherwise might be a dischargeable credit card debt (as an example) into a non-dischargeable debt. You can discharge your debt to the credit card lender, but you will still have to pay up to the extent your spouse is also liable on that card.
How are Marital Debts other than Domestic Support Obligations treated under the Chapter 13 “Super Discharge”?
Chapter 13 provides a broader range of relief. Here, only “Domestic Support Obligations” [“DSO’s”] are non-dischargeable. Frequently, this generates disputes in court about whether a particular debt is a DSO or not. Bankruptcy and state family court judges can both make this determination. Labels applied are not conclusive. Courts will also look at the function served by the payment obligation, and other factors.
Note also, that in any Chapter 13 case, you must continue to pay all alimony, spousal support other DSO obligations, and if there are arrears, these must be fully paid through the Plan.
In a Chapter 13 proceeding, non-DSO debts owed to an ex-spouse are considered to be non-priority, unsecured debt, similar to medical bills and credit card obligations. Accordingly, these debts would be pooled with all other unsecured, non-priority debt. When you put together your reorganization plan, the amount that will go toward non-support debt will be based on a number of factors, including:
- How much you owe on debts that must be paid in full under bankruptcy laws
- The total amount of unsecured, non-priority debt
- The length of your plan—anywhere from three to five years
- The amount of administrative expenses for the bankruptcy
- How much you can actually afford to pay
- Requirements of the “Means Test” if applicable
The interplay of divorce and bankruptcy is always complex and requires the advice of an experienced counsel knowledgeable in both areas. At Neuner and Ventura LLP we have substantial experience in both areas. It may be wise for you and your divorce attorney to consult with us early in the divorce process to be guided to the best result possible.
Contact Neuner & Ventura, LLP
We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.
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