Often in a divorce case when assets and debt are split up, one spouse may end up owing the other some amount of money to cover a debt, assets or child support. There are some very specific rules regarding discharging debts owed to a former spouse, so it is always a good idea to review your specific situation with an attorney that handles both bankruptcy and family law.
Pursuant to 11 U.S.C. §523 (a)(15), exceptions to discharge, a debt owed "to a spouse, former spouse, or child of the debtor...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" is not dischargeable in a Chapter 7 bankruptcy case.
This means that if a spouse owes you money under the terms of a Judgment of Divorce, they cannot file for Chapter 7 bankruptcy to get rid of the debt!
HOWEVER, there is what is known as the Chapter 13 "Super Discharge". A Chapter 13 bankruptcy could be considered more "powerful" than a Chapter 7 in that it can wipe out certain kinds of debt a Chapter 7 cannot. Here are a list of some of those types of debts:
Willful/Malicious property damage
Debts incurred to pay nondischargeable tax debts
Certain debts arising out of divorce or separation property settlements/judgments
Post-petition homeowners' dues
government fines, penalties and forfeitures
Crammed down liens/loans
For purposes of this article, let's look at debts arising out of divorce with an example:
Bob and Sally get divorced and as part of the divorce Judgment, Bob is supposed to pay off the joint credit card owed to ABC Bank. If Bob files a Chapter 7 bankruptcy, he will discharge his obligation to ABC Bank, but NOT to Sally. Sally could still seek compensation from him for the debt through family court. BUT, if Bob files a Chapter 13 bankruptcy case and receives a discharge, he will discharge his obligations to BOTH ABC Bank and Sally, neither of them can collect from him in the future! He gets a Super Discharge!
It's important to note that no bankruptcy case will discharge child support obligations, but a Chapter 13 bankruptcy case can help you repay them if needed. Always review your specific situation with an attorney.
Attorney Allison Greenlee Korr handles both family law and bankruptcy cases in Kalamazoo, Battle Creek and all surrounding counties, call today for a consultation. 269-381-4471