A fairly common issue that arises in bankruptcy cases is what happens to those debts that were divided in a divorce proceeding. The answer to that question largely depends on two things–what type of debt it is, and what chapter of bankruptcy you are filing.
First, you must determine if the debt that is owed is what the Bankruptcy Code terms a “Domestic Support Obligation” (“DSO”). The Code defines a DSO as a debt owed to a former spouse or child of the person filing for bankruptcy in the nature of “alimony, maintenance, or support.” See 11 U.S.C. § 101(14A). If the debt owed is child support or spousal support (alimony), then it will not be discharged in either a Chapter 7 bankruptcy nor in a Chapter 13 bankruptcy. It is sound public policy that debts like child support and alimony would not be discharged in bankruptcy. However, often there are debts provided for in a divorce decree, that while not actually child support or alimony, are considered or deemed alimony by the very terms of the divorce decree. Often family law attorneys will purposefully draft the divorce decree with this very issue in mind and will try and frame as much of the debt as “support” or “alimony” as possible so that it will be non-dischargeable in bankruptcy.
The second type of debt one often sees in a divorce decree are those debts that are neither child support or alimony, but are debts that were incurred during the marriage. A good example are credit cards that were used during the marriage. The divorce decree will include a “property settlement agreement” that will provide for how these debts are going to be divided between the husband and wife. Debts owed based upon a property settlement agreement are likewise non-dischargeable in a Chapter 7 bankruptcy, similar to child support and alimony. However, property settlement debt is dischargeable in a Chapter 13 case.
In sum, in a Chapter 7 bankruptcy, neither child support, alimony (“DSO”), nor debts stemming from a property settlement agreement are dischargeable. In a Chapter 13 bankruptcy, child support and alimony are non-dischargeable, however debt from a property settlement agreement is dischargeable.
If you have questions reqarding bankruptcy or how bankruptcy will effect your divorce, call an Arizona bankrutpcy attorney at JacksonWhite for a free bankruptcy consultation at (480) 464-1111.