Making Sense of Bankruptcy: Writing off a Non-Support Debt
May 4, 2015
Besides providing a unique and powerful way to catch up on support arrearage, Chapter 13 can discharge other debts from your divorce.
Here’s today’s sentence we’re explaining:
If you owe financial obligations from your divorce other than your child or spousal support, Chapter 13 can discharge them.
Divorce Financial Obligations
Bankruptcy deals with debts. In certain very specific and often crucial ways it can help you with debts arising out of your divorce. But it does not get into the non-financial obligations like child custody and visitation and other parenting rights issues, or other non-financial disputes with your ex-spouse. The bankruptcy system leaves all that to the divorce courts.
Indeed you need to be cautious even with financial obligations arising out of a divorce, because the bankruptcy court respects the divorce courts to some degree here, too. For example, if the amount you are paying monthly for child support is now too high because of changed circumstances, you need to get that lowered through the divorce/family court not the bankruptcy court. That makes sense since that’s the divorce court’s area of expertise. Plus different courts generally tend to respect each other’s decisions in the interest of “judicial economy”—the efficient use of court resources.
Divorce financial obligations are divided into two kinds—support and non-support obligations. A Chapter 7 “straight bankruptcy” can’t discharge (legally write off) either kind. Chapter 13 “adjustment of debts” can help you catch up if you are behind on support obligations—see our blog post of a week and a half ago about that. It can also discharge all or part of your non-support obligations. So if you have any non-support obligations, you should consider filing a Chapter 13 case.
What Are Non-Support Divorce Obligations that Can Be Discharged?
These are financial obligations in a marital separation or divorce decree with deal with the division of marital property or marital debts. Non-support obligations usually include two types:
obligations to pay your ex-spouse directly in return for you having received more than your share of the marital assets (for example, if you received the vehicle worth more, than you could owe your ex-spouse an amount of money to make up for the difference)
obligations to pay debts jointly to a creditor (for example, to pay in full a debt that was jointly owed with your ex-spouse)
Usually support obligations are clearly labeled as such in the divorce court documents, and then non-support obligations are simply the rest of them. But under bankruptcy law, support obligations can also include those “in the nature of support” even if not so labeled. For example, an obligation to pay health insurance on behalf of a child, or educational expenses, may not be called support in the divorce court documents but could be considered “in the nature of support” by the bankruptcy court. This is a crucial distinction, because again support simply can’t be discharged, under either Chapter 7 or 13, while non-support can be, only under Chapter 13.
A Chapter 13 Discharge of Debts vs. a Chapter 7 One
Chapter 7 cases last usually only 3-4 months, with the discharge of debts at the end of that period of time. Debts are usually discharged, with exceptions such as all divorce-related debts.
Debts are discharged at the end of Chapter 13 cases as well, but they last 3 to 5 years. They involve a payment plan paying usually a portion of your debts, often only a relatively small portion of them, sometimes even nothing to certain creditors.
So under Chapter 13 you can discharge non-support divorce obligations but have to successfully go through a payment plan to do so, one that may have you paying a portion of that non-support obligation to your ex-spouse.
How much you will have to pay depends on a myriad of factors, including your income and expenses during that 3-to-5-year period, your other debts, and how the law prioritizes your various debts. Only an experienced bankruptcy attorney would be able to look at all your factors and prepare a Chapter 13 payment plan for you showing all this.
But be aware that in many situations the total amount you pay all your creditors is based simply on how much you can afford to pay them during the period of time you are in the Chapter 13 case. That means that your ex-spouse will only get the same percent of his or her non-support obligation paid as will many of your other creditors. It also means that adding this non-support obligation often doesn’t increase the amount you pay to all your creditors during the life of the Chapter 13 case. Instead the non-support obligation simply reduces what the other creditors receive. You simply pay what you can afford during the required period of time—which again often is not a high portion of what you owe—and at the end of that time whatever you hadn’t paid of all of your debts is forever discharged, including your non-support obligations.