You may have heard that in bankruptcy you can never discharge financial obligations to your ex-spouse that were created through your divorce. This misconception is understandable because it’s true much of the time. You can’t discharge virtually any kind of obligation owed to your ex-spouse under Chapter 7. You cannot discharge child and spousal support with ANY kind of bankruptcy. As stated above, only NON-SUPPORT obligations can be discharged, and only under Chapter 13.
But Chapter 13 is a payment plan, so why would that help? Because in many Chapter 13 cases the creditors are not paid very much, and sometimes some of the creditors are paid nothing. This depends on many factors but mostly on what you can afford to pay. You may be allowed to pay other creditors like your vehicle loan and an income tax debt, but little or nothing to the rest of your creditors.
So what are the non-support financial obligations which CAN be discharged in a Chapter 13 case? Generally these would include all other requirements to pay money to or on behalf of your ex-spouse. They involve how the marital assets or the marital debts are divided in the divorce. The most common are 1) property-equalizing obligations, and 2) debt-designating ones.
These are just like they sound. An example of a property-equalizing obligation is when one ex-spouse gets the more valuable of their vehicles, and either agrees to or is ordered to pay money to the other to make up the difference in the vehicles’ values. An example of a debt-designating obligation is when one spouse agrees to or is ordered to pay all of one credit card debt because he or she used that card for his or her benefit without the knowledge or consent of the other spouse.
So these kinds of non-support debts can be discharged under Chapter 13. If you have this kind of debt, it may be a very good reason to file a Chapter 13. But let’s look at three other important considerations.
1) Make sure the debt you want to discharge is not “in the nature of” support. An obligation “in the nature of” child or spousal support can be called something else in the separation or divorce documents. But it would still be treated as a support obligation and not discharged in bankruptcy, even under Chapter 13. And, if you are obligated to pay your ex-spouse’s attorney fees that were incurred when negotiating or litigating support issues, those attorney fees are deemed to be “in the nature of support” and cannot be discharged in any kind of bankruptcy. Be sure to bring in your separation or divorce documents so that we can review them and address this.
2) Talk to us about your ex-spouse’s potential reactions. Most conventional creditors tend not to take it personally when you file bankruptcy and write off your debt to them. Understandably, an ex-spouse could take it very personally, and become a very aggressive adversary in the Chapter 13 case, and potentially even try to retaliate in divorce court. Often there is not much that an ex-spouse could actually accomplish by taking these actions, and so these reactions happen less than expected. But be sure to discuss this with us.
3) The discharge of your debts in a Chapter 13 case, including those owed to an ex-spouse, only occurs if you successfully complete your case. So before you start, you need to think realistically about whether you will be able to keep up the payments. And then commit to see it through to the end.
If you owe substantial non-support financial obligations to your ex-spouse, Chapter 13 can often give you much more overall relief from your creditors than Chapter 7. But as you can see, this is a delicate decision that needs to be discussed carefully with your attorney.