In a bankruptcy what happens to debts between a divorced husband and wife?
Unfortunately, divorce and bankruptcy often go together. What happens to the debts that spouses owe to each other when one files for bankruptcy? The bankruptcy code distinguishes between two kinds of marital debts and limits the dischargeabilty of both.
1) The domestic support obligation refers to alimony and child support, but includes payments coming due before, during or after the bankruptcy, if they are subject to a separation agreement, divorce decree or court order. If they are in the nature of alimony, maintenance or support the court looks to the true nature of the payments, despite what they are called in the agreement or order. Not only can these debts not be discharged in a Chapter 7 or in Chapter 13 bankruptcy, they are deemed priority debts and paid in preference to unsecured debts, like school loans and credit cards. Furthermore, a Chapter 13 debtor with domestic support obligations must keep his support payments current or his bankruptcy is liable to be discharged.
Domestic support obligations can include attorney fees paid by one spouse to the other spouse’s attorney, when the second spouse is awarded alimony or child support. They can include agreements to pay utilities, mortgage payments and insurance when they are deemed necessary to support the non-filing spouse. The burden is on the creditor to prove that the debt is non-dischargeable.
2) The other category of marital obligations are marital property settlement debts. These encompass all debts to a spouse or child incurred by the debtor in the course of a divorce or separation, which are not otherwise domestic support obligations (category 1, above). In other words, everything else. They can include credit card debt, student loan payments, uncompensated labor, anything that is not deemed a support payment. They are also not dischargeable in a Chapter 7, but are dischargeable in a completed Chapter 13 bankruptcy, after the debtor has made all the payments and fulfilled all the other requirements for discharge.
The only game in town for a debtor seeking to be rid of marital property settlement debts is to make Chapter 13 payments for either the 3 or 5 year required period. The debtor’s resultant Chapter 13 discharge will absolve the debtor of the obligation to pay any outstanding marital property settlement debts that did not get paid through the bankruptcy.