Series: #13 0f 13
The previous article in this Overview of Bankruptcy series discussed how stripping off wholly unsecured mortgages is a valuable option in a Chapter 13 case, giving a debtor the opportunity to modify a wholly undersecured second or other junior mortgage. In this last article of the series, we will take a brief look at discharging property settlements during a divorce.
Discharging Property Settlements to Spouse, Ex-Spouse, or Children
Pursuant to 11 U.S.C. § 523*(a)(15), a Chapter 7 filing will not discharge any debt to a spouse, former spouse, or child of the debtor (and not child support) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.
Certainly an argument can be made that a divorce decree that orders the debtor to pay debts of the marriage or attorney fees incurred in a divorce (which are not in the nature of alimony, maintenance or child support) may not be dischargeable in a Chapter 7 filing. The filing, completion and discharge of a Chapter 13 allow the discharge of such debts and protect the debtor from an angry ex-spouse and/or state court judge.
Oftentimes, the ex-spouse has already filed his or her own Chapter 7 in which case, the debtor may be able to file a Chapter 7. A careful review of the divorce decree and the ex-spouses filing (to determine what debts have been listed and discharged) should be taken before making any determination as to the appropriate chapter.
As we mentioned at the beginning of this series, there are many reasons in which a debtor may find as much or more “stress-relief” in a Chapter 13 reorganization. The attorney must be careful to analyze all the benefits and risks (as required by 11 U.S.C. § 526(a)(3)(B) and rules of professional responsibility) before making such a determination as to which chapter is appropriate. If a Chapter 13 is appropriate, then the attorney needs to carefully determine whether such a plan is feasible and offered in good faith to the court. If all of these factors are met, confirmation of the plan is likely to follow.
* Source: Cornell University Law School Legal Information Institute