Saturday, April 26, 2014

Dischargeability of Divorce Debt in Bankruptcy

Although certain types of divorce related debt are non-dischargeable in bankruptcy, certain types of divorce debt are dischargeable in bankruptcy Whether an item is dischargeable depends on

  •  the nature of the debt 
  • whether the case is filed under chapter 7 or chapter 13

Domestic Support Obligations - Alimony, Maintenance or Support

"Domestic Support Obligations" are not dischargeable in either chapter 7 or chapter 13. Section 523(a)(5) of the Bankruptcy Code excludes from discharge any debt "for a domestic support obligation." A domestic support obligation is a

               "debt...owed to or recoverable by (i) a spouse, former spouse, or child of the debtor or such                        child's parent, legal guardian, or responsible the nature of alimony, maintenance, or                      support of such spouse, former spouse, or child of the debtor of such child's parent, without regard                to whether such debt is express so designated; ... established reason of (i) a separation                          agreement, divorce decree, or property settlement agreement. 11 USC 101 § 101 (14A) 

The determination of whether a particular divorce-related debt is a "domestic support obligation" is a question of federal law. In making this determination, the court does not solely rely on the label placed on the debt in the divorce judgment but looks beyond the state court label and examines whether the debt is actually in the nature of support or alimony." Cummings. v. Cummings, 244 F.3d 1263, 1265 (11th Cir. 2001). 
Factors in making this determination include the intentions of the parties, whether there is an element of need, and whether there is a disparity of incomes.  Cummings, 244 F.3d at 1266.  In re: Lutzke, 223 B.R. 552, 554 (Bankr. D. Or. 1998). 

Debts from Property Settlements- Chapter 7 vs. Chapter 13

Even if the debt is not for a "domestic support obligation," a debt 

  •  to a spouse, former spouse, or child of the debtor 
  • that is incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of court
are also not dischargeable in chapter 7, but they are generally dischargeable in a chapter 13 case. Steele v. Heard, 487 B.R. 302, 308 (S.D. Ala. 2013).