Bankruptcy and Divorce Proceedings: What Debts Can Be Discharged?

Guest post by Nathaniel J. Thompson, bankruptcy attorney at the Law Office of Nathaniel J. Thompson

It is not uncommon for bankruptcy law to interact with family law. In fact, one of the four most common causes for the filing of a bankruptcy is a recent divorce. Common questions that arise in family law when a bankruptcy is filed include whether any debts incurred through the divorce and related proceedings may be included in the discharge.

Before answering the above question, it should be noted that a married couple may file a joint bankruptcy case at any time before a court enters the divorce decree. If the parties may cooperate with doing a joint bankruptcy, in a lot of cases it is beneficial to do so, to simplify the debt division in the divorce. It also reduces the total cost for bankruptcy, as typically, a joint case is cheaper than two individual cases.

Can debts related to the divorce be discharged?

Looking back on your divorce, you may believe you were asked to give up too much. So what obligations may be discharged in the bankruptcy? Well, that may depend on the chapter of bankruptcy under which you seek relief. This answer can depend on the smallest details, so it will be necessary to have an attorney review your specific circumstances.

Chapter 7:

The most common chapter of bankruptcy used by the public is chapter 7. The chapter 7 discharge is codified, and two sections affect what is included in the chapter 7 discharge: 11 U.S.C. § 727 and 11 U.S.C. § 523(a). Section 727(b) excludes debts listed in section 523(a) from the chapter 7 discharge.

First, if the divorce-related debt is a domestic support obligation, it will not be discharged. 11 U.S.C. § 523(a)(5). Second, any debt to a spouse, former spouse, or child of the debtor that is not a domestic support obligation 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 by a governmental unit (so basically any other obligation resulting from the divorce) will not be discharged. 11 U.S.C. § 523(a)(15).

So in chapter 7, not much resulting from the divorce will get discharged. Perhaps attorney fees you owe to your attorney and depending on how it was set up, attorney fees you owe to an ex-spouses attorney.

Chapter 13:

The chapter 13 discharge is sometimes referred as a “super discharge” as it is a bit broader than the chapter 7 discharge. This is especially the case when dealing with debts related to a divorce.

However, your support obligations will not be discharged. This is simply public policy, and Congress believes support obligations should not be so easily released.

Other divorce-related debts:

This is where chapter 13 can really help out. Section 1328(a)(2) (the chapter 13 discharge) excludes 523(a)(15) from the exceptions to a chapter 13 discharge. This means other divorce-related debts, such as property division or debt division may be included in the chapter 13 discharge!

 

What to watch out for

As you can see, it makes a huge difference if a debt is a domestic support obligation. A fair amount of divorce attorneys have figured this out too. So language will be included in a separation agreement that labels certain obligations as in the nature of domestic support. A good divorce attorney will go so far as to include language that makes clear that the property and debt division was done as it was in contemplation or consideration of maintenance or the waiver thereof. This type of language can change a debt that might have fallen under 523(a)(15) to instead be considered a domestic support obligation under 523(a)(5).

A Colorado Supreme Court case relevant to this issue and that provides appropriate analysis is In re Marriage of Weis, 232 P.3d 789 (Colo. 2010). If your debt has been labeled as a support obligation and language is included stating the debt was in consideration of maintenance obligation or the waiver of maintenance; it will be a very uphill battle to have the bankruptcy judge disturb the orders of the state court. So before signing a separation agreement, make sure your attorney has advised you regarding how a bankruptcy may affect your obligations or your benefits.

About The Law Office of Nathaniel J. Thompson

Nathaniel J. Thompson, attorney at law and principal partner
Nathaniel J. Thompson, attorney at law and principal partner

The Law Office of Nathaniel J. Thompson is a law firm that handles work on behalf of folks who live in or near Denver. If you feel that you may need to have a lawyer present to help you deal with creditors or other financial institutions, we can advise you. We consult with area residents who have questions about debt laws, the foreclosure process and filing for bankruptcy protection. Call 720-319-7049, email nathaniel@njtlaw.net or visit www.njtlawcolorado.com to schedule a free evaluation.

This article is not a substitute to hiring an attorney is NOT meant to be legal advice. Further, it is meant to be a marketing tool and is not an exhaustive source of applicable laws relating to this subject. To find out how the law applies to your circumstances you must retain counsel or come to your own independent determination.