Can I use bankruptcy to divorce myself from the debts I was ordered to pay in my divorce?
It was a great marriage. Well it was, until it all fell apart. In the divorce your spouse got the gold mine and you got the shaft. Of course, you now have to pay support as well. Even worse, you were ordered to pay a ton of debts you cannot afford to without giving up those luxuries like uhmmmmm food.
What you really want to know is if you can use bankruptcy to get rid of those debts you were ordered to pay in your divorce.
This is a common question I hear from clients. Most attorneys will tell you “no, you cannot get rid of these debts” you were ordered to pay in your divorce by filing bankruptcy.
My response is a definite “maybe.”
Okay, that was helpful you say (not!) Let me explain how the bankruptcy system works and how to make it work for you.
History of debt and divorce
First, a little history in bankruptcy laws. When the “Bankruptcy Code” replaced the old Bankruptcy Act” in the early 1980’s, the law had a Code Section that did not allow support orders and debts from those orders to be discharged. Other debts from a divorce were dischargeable if shown that the other spouse was more capable of paying them than the person filing the bankruptcy.
In 2005 the Bankruptcy Code was changed with the addition of Code Section 523(a)(15.) That Code Section states as follows:
523 (a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . .
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) 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, or a determination made in accordance with State or territorial law by a governmental unit;
What that means is that the non-support debts ordered to be paid in a divorce are not dischargeable in bankruptcy. However, that only applies to a Chapter 7 straight bankruptcy. It does not apply in a Chapter 13 Bankruptcy reorganization plan.
Debt in Divorce in chapter 7
Okay, that is not quite accurate. In a Chapter 7 straight bankruptcy the debt to the creditor is discharged in the bankruptcy. The creditor cannot come after you. That is because the bankruptcy discharge order at the end of the case eliminates their right to go after you. What is not discharged is your obligation to “indemnify,” that is pay your ex-spouse back if the creditor goes after them and your ex-spouse pays the creditor money. That is enforceable in the family law court (i.e. the divorce court) by way of a “Contempt of Court” action.
I quite often deal with this very issue with my clients. The one door left open under the Bankruptcy Code is if, instead of filing a Chapter 7 straight bankruptcy, you file a Chapter 13 Bankruptcy reorganization plan. Depending on income the reorganization plan will be not less than 3 years and not more than 5 years. It sounds more like a prison sentence than something in a Chapter 13 bankruptcy reorganization. In some ways it may feel like it, if you are struggling to survive and now have to pay monthly payments to a Chapter 13 Bankruptcy Trustee.
The really good news is that your payments for 3-5 years in a Chapter 13 bankruptcy reorganization often can be as little as $100 and sometimes even less. In some cases, your bankruptcy attorney may agree to be paid some or all of their attorney’s fees through the Chapter 13 bankruptcy plan payments. You can even end up not paying a penny to the “unsecured creditors.” That includes the ones that the family law court ordered you to pay. That also includes the ex-spouse even if they end up having to pay the debts.
At the end of the Chapter 13 bankruptcy plan, you get a “discharge order.” That order overrides the divorce orders and ends your obligations, other than the support orders, under the divorce decree. It is kind of like getting the “get out of jail free” card in Monopoly.
I have had many clients who could do a Chapter 7 Bankruptcy that we instead did a Chapter 13 bankruptcy reorganization to eliminate their obligation to pay debts under the family court orders.
If you are dealing with divorce, the best time to see a bankruptcy attorney is right now.
If you file a bankruptcy before there is a divorce order to pay any debts, you can avoid the family law court even having the right to order you to pay any of the debts. You may, at that time, qualify to file a Chapter 7 straight bankruptcy and wipe out the debts as to yourself.
Support orders will not go away no matter what type of bankruptcy you file. What can go away is the family law court’s ability to order you to pay any of the debts. If you have been ordered to do so before a bankruptcy is filed, your only way out is to do a Chapter 13 Bankruptcy reorganization. Either way, it is better than giving up that last can of pork and beans to pay the debts from your divorce.
