Different “domestic relation” debts are dischargeable in Chapter 7 versus Chapter 13. So, it matters what type of bankruptcy is filed.
CHAPTER 7 & DOMESTIC RELATIONS DEBTS
Debts that are not discharged in a Chapter 7 Bankruptcy are found in 11 USC § 523. Particular to domestic relations, Section 523(a) provides that a debtor is not discharged from any debt –
(5) for a domestic support obligation;
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;
This language gives you a general idea of the types of things that are nondischargeable in Chapter 7. More detail is found in 11 USC § 101. Feel free to skip below to “What does all this mean?” if you don’t like lawyer-speak.
Section 101 defines a “domestic support obligation” as follows:
(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date [the bankruptcy is filed], including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is–
(A) owed to or recoverable by–
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of–
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
What Does All This Mean?
In relatively plain English, a Chapter 7 debtor is not discharged from debts that include, but are not limited to, the following:
- Current child support or spousal maintenance,
- Past due child support or spousal maintenance
- Past due child support or spousal maintenance voluntary assigned to the government for collection
- Any debt found by the court to be “in the nature of” support or maintenance (such as a promise to give a house with equity in lieu of regularly monthly spousal maintenance)
- Amounts due under a property settlement agreement such as an equalization judgment
- Any debts the debtor agreed to pay in a divorce decree and “hold harmless” the other spouse [Note: It is the obligation to the spouse and not the original creditor that is not discharged.]
The Divorce Decree and “Hold Harmless” Clause
Most of the above debts are fairly self-explanatory. One of the trickier ones to understand can be debts incurred in the course of a divorce. 11 USC § 523(a)(15). Example: Let’s say you agree to pay an old credit card debt in the divorce and agree to hold “hold harmless” your ex-spouse, i.e., your promise to pay it so she won’t have to. If you file bankruptcy is the credit card debt discharged? Yes. BUT if your ex-spouse had liability on the credit card and that creditor goes after her and collects, your obligation to “hold harmless” your ex-spouse on that debt is NOT discharged. That means you must pay debt or the ex-spouse can sue you for not paying the debt (because your obligation to the ex-spouse incurred in the divorce via the “hold harmless” clause for that debt was not discharged.).
On the other hand, if the ex-spouse is not obligated on the original contract for the credit card, then the ex-spouse has no liability to that creditor and that creditor cannot collect from the ex-spouse. In that case, the ex-spouse won’t come after you for payment because they did not come after the ex-spouse. You are free of the credit card debt and any claim by the ex-spouse.
CHAPTER 13 & DOMESTIC RELATIONS DEBTS
Debts that are not discharged in a Chapter 13 Bankruptcy are found are 11 USC § 1328. Particular to domestic relations, a chapter 13 discharge is just like a Chapter 7 discharge with one significant difference. A “property settlement” is not dischargeable in Chapter 7 but is dischargeable in Chapter 13. The reason for this is that Section 1328 says the debts discharged in Chapter 13 include debts that fall under 11 USC 523(a)(5) [just like a Chapter 7 case], but the list under Section 1328 for debts not discharged in Chapter 13 does not include debts that fall under Section 523(a)(15). The result is that debts that fit under Section 523(a)(15) are dischargeable in Chapter 13. It is as simple as that.
What type of debts fall under Section 523(a)(15) and can be discharged in a Chapter 13? Property settlements and “hold harmless” obligations fall into this category. Current and past due child support, spousal maintenance and everything “in the nature” of support and maintenance is not dischargeable in a Chapter 13. But, if the debt is not really about ‘basic living expenses’ (like, arguably, support and maintenance) and it is more about just making a divorce property and debt settlement/distribution financially “fair” (dividing up the assets and debts), then it might be dischargeable in Chapter 13.
While we are on the subject, it is important to note that nondischargeable “domestic relation” debts must be paid over the three to five years term of the usual Chapter 13 case. That means that current support/maintenance must be paid and past-due support/maintenance must be brought current through the plan (unless the creditor agrees to a different treatment). Thus, not only are these sorts of “domestic relation” debts nondischargeable, current amounts must be paid and past-due amount must be brought current. See, 11 USC §§ 1322(a)(2), 507(a)(1).
FIGURING IT OUT – FREE INITIAL CONSULTATION
Obviously, this can be quite a tricky area. As you should know by now, we offer a free initial consultation to help sort out these and any other issues. We can meet by phone or in person. And you can pick the date and time that works best for you by using our online calendar. If we can be of further assistance, just let us know.