ARE DIVORCE DEBTS DISCHARGED IN BANKRUPTCY?
The question often arises to what extent are divorce debts discharged in bankruptcy?A divorce often generates several different types of debts to a divorced person considering filing for bankruptcy. Chief among them are:
- Property settlement obligations to the former spouse,
- Maintenance, formerly called alimony, owed to the former spouse, and
- Child support owed to the former spouse.
DOMESTIC SUPPORT OBLIGATIONS
The Bankruptcy Code exceptions to discharge of divorce debts are divided into two categories. One category is domestic support obligations. The other is property-settlement obligations.
Domestic support obligations are generally divorce debts owed to a former spouse, child, or guardian, that are in the nature of alimony, maintenance or support and established by a divorce decree or separation agreement.
Domestic support obligations are non-dischargeable in both a Chapter 7 and Chapter 13 bankruptcy.
PROPERTY SETTLEMENT OBLIGATIONS
The other chief category is property settlement obligations. Virtually all property settlement obligations and other divorce related obligations are non-dischargeable in a Chapter 7 bankruptcy.
In a Chapter 13 completed plan discharge, however, the property settlement debts are discharged. This alone may be a significant reason to file a chapter 13. Thus, it is important at times to distinguish a non-dischargeable support obligation from a dischargeable property settlement obligation. The three main factors bankruptcy courts look at in determining whether it is a non-dischargeble domestic support obligation is:
- The actual language and substance of the agreement;
- The parties financial circumstances at the time of the agreement; and,
- The function the obligation served at the time of the divorce or settlement agreement.
If the obligation served as a source of income for the former spouse at the time of the divorce, it will usually be considered a non-dischargeable support obligation.
Have your financial situation considered by an experienced bankruptcy attorney andformer Trustee for the U.S. Bankruptcy Court. Call or contact LONG & LONG P.C.now at 303-832-2655, or www.denverbankruptcylawyer.net.