Divorce can be an expensive event that can leave both parties with attorney fees, reduced income and increased living expenses. Accordingly, it’s no surprise that many people emerging from divorce have debt they want to eliminate in bankruptcy. However, bankruptcy cannot eliminate all debts resulting from divorce.
Credit Card Debt
Divorce can involve paying a family law attorney several thousand dollars. Unsurprisingly, many people can’t afford the expense at the time, so they use credit cards to finance legal representation. In the end, paying even a low-cost divorce attorney several thousand dollars can leave clients with significant credit card debt. In addition, many people emerging from divorce find themselves with increased living expenses as they must now afford an individual household. To make ends meet many people use credit cards to finance their living expenses after divorce.
After divorce clients with credit card debt may explore their bankruptcy options. Fortunately, credit card debt is classified as general unsecured debt in bankruptcy and is therefore dischargeable in chapter 7 bankruptcy and chapter 13 bankruptcy.
Child and Spousal Support
While credit card debt is dischargeable in bankruptcy, domestic support obligations are never dischargeable. [11 USC 523(a)(5)]. Furthermore, the interest on domestic support obligations that accumulates before and after the bankruptcy petition is filed is also nondischargeable.
Domestic Support Obligation means a debt (1) owed to a spouse, former spouse, child or governmental unit; (2) in the nature of alimony, maintenance or support; (3) established by a divorce decree, separation agreement, property settlement agreement, or court order.11 USC 101(14A)
The definition of a domestic support obligation clearly includes child support and spousal support, but in fact it’s so broad it even includes a debtor’s obligation to pay family law attorney fees awarded in a marriage dissolution judgment due to the recipient spouse’s financial need.
Property Settlement & Nonsupport Debts
In addition to domestic support obligations, debts to a spouse, former spouse or child that are incurred in the course of divorce, separation or in connection with a separation agreement, divorce decree or court order are nondischargeable. [11 USC 523(a)(15)]. Accordingly, even debts to a former spouse arising from a property settlement agreement or dissolution judgment are nondischargeable, even if they’re not in the nature of support.
Chapter 13 Bankruptcy Exception
Nonsupport debts to a former spouse or child incurred in connection with separation or divorce may be dischargeable in chapter 13 bankruptcy after making all plan payments over 3 to 5 years.