Divorce and Bankruptcy are like summer and ice cream – they just seem to go together.
The typical scenario is that divorce is followed by a bankruptcy filing for one or both spouses as a result of trying to support two households on the same income. If your ex owes you money as a result of the divorce, you may be wondering what will happen if they file for bankruptcy.
Depending on the type of obligation that your ex owes you, the result of a bankruptcy filing by an ex-spouse could end up in several different ways.
If the obligation is for child support or alimony (called a “domestic support obligation” in the Bankruptcy Code), then the obligation is not dischargeable in any type of bankruptcy filing. Chapter 7, Chapter 11 and Chapter 13 all exclude domestic support obligations from the discharge provisions of the Bankruptcy Code. See 11 U.S.C. §§ 523(a)(5); 1141(d)(2) and 1328(a)(2). Domestic support obligations also include past due amounts for child support or alimony, interest that has accrued on the past due amounts and any attorney’s fees and costs necessary to obtain or enforce the child support or alimony against the ex-spouse in State Court. See In re Diaz, 647 F.3d. 1073 (11th Cir.2011). A bankruptcy filing by an ex-spouse will also not serve to stop the Family Law Court from ordering child support or alimony to be paid if the bankruptcy was filed prior to or during a divorce. See 11 U.S.C. § 523(b)(2).
The tricky issues in bankruptcy and divorce come in situations where the obligation is not child support or alimony, or the ex-spouse may claim that the obligation is not covered by the domestic support obligation exception to the discharge. Typical situations include property settlement agreements where an ex-spouse is obligated to pay a lump sum or to pay a joint debt that was owed prior to the divorce. In these situations, a bankruptcy attorney is needed to determine whether legal action is needed to protect your rights to the future payments.
Chapter 7 and 11 and property settlement agreements
Any non-child support or non-alimony obligation incurred in connection with a divorce in Chapter 7 is covered by 11 U.S.C. § 523(a)(15). In both Chapter 7 and Chapter 11, the obligation is non-dischargeable. Such obligations take the form of “hold harmless” provisions for joint debts, obligations to pay joint debts, obligations to pay a lump sum in the future and obligations to sell property and split proceeds. It is generally a good idea to have the Bankruptcy Court issue a Judgment that such a debt has not been discharged by the Chapter 7 or Chapter 11. This requires the filing of an Adversary Proceeding with the Bankruptcy Court. Generally, no trial is required as the Court will issue summary judgment as long as the obligation was as a result of a divorce or separation. The Judgment will prevent any problems in the future with the ex-spouse attempting to claim that such obligation was discharged.
Chapter 13 and property settlement agreements
Chapter 13 is the one bankruptcy filing that may create an issue if you are owed a property settlement agreement obligation as described above. Remember, this is not a child support or alimony obligation. If you feel that you have an alimony or child support obligation that your ex-spouse is attempting to treat as a property settlement agreement, you can have the State Court or the Bankruptcy Court determine the nature of the agreement. If it is determined that such obligation is a property settlement agreement and not child support or alimony, Chapter 13 provides that such obligation may be discharged as an unsecured debt. See 11 U.S.C. § 1328(a)(2). If the Plan meets all requirements of Section 1325, the Chapter 13 may propose a Plan that contributes a minimal amount to unsecured debts over the life of the Plan and discharge any remaining obligation upon discharge in the case.
It is critical to have the correct determination of the type of obligation when assessing whether the debt may be discharged in any type of bankruptcy filing. Please contact our office at 904.725.0822 or email@example.com for further information regarding any obligations from a divorce as they relate to a bankruptcy filing.