Love and Marriage.
Fries and Catsup.
Chips and Dip.
Like these famous pairings, divorce and bankruptcy are frequent companions.
When a couple goes their separate ways, often the most substantial marital accumulation is debt.
The questions we get as bankruptcy practitioners usually revolve around whether to file a bankruptcy case before or after the divorce.
The sound answer is, of course, “it depends”.
The argument for filing before revolves around the economy of filing a joint case. There’s one filing fee, one attorney. Also, the pile of debts to be divided is reduced by the bankruptcy discharge.
The counter argument looks at the parties’ ability to cooperate in the bankruptcy case; the unpredictable treatment of the debtor by the state court in a post bankruptcy divorce ; and the question of whether a premature bankruptcy will expose one party or the other to a debt that could have been discharged in a post divorce bankruptcy.
But for the issue of the time wasted dividing debts, I’ve felt the conservative position was to file after the divorce, but it seemed like a conservatism that protected me as the bankruptcy lawyer at the expense of my client. There was less chance of unexpected consequences in waiting, but certainly at a price for the client.
Support invulnerable
The given is that support debts are not dischargeable in any chapter, at any time. Prepetition domestic support obligations have priority for payment and post petition currency on support is a condition of a Chapter 13 discharge.
The stay doesn’t apply to proceedings for custody, visitation, modification of support, or termination of marital status.
Non support debts
One of the few areas of bankruptcy law that BAPCPA made easier was the treatment of non support debts that arise in a divorce. Section 523(a)(15) now flatly makes debts to a spouse, former spouse, or child of the debtor incurred in the course of the divorce non dischargeable in a Chapter 7.
Pre BAPCPA, the section made discharge of such debts conditioned on the timely filing of an adversary by the spouse or child and a determination that the creditor would be more disadvantaged by discharge than the debtor, should the debt not be discharged.
It was messy, expensive and uncertain. Now, the rule is straight forward and predictable.
Chapter 13 is different
What is critical to note is that §523(a)(15) is not one of the exclusions from the Chapter 13 discharge.
So, if the debt is not in the nature of support and the creditor is a spouse, former spouse or child of the debtor, the debt can be discharged in Chapter 13.
More
Family court and debts after bankruptcy
Making a marital settlement bullet-proof
Image courtesy of Flicker
This is a great post Cathy and an issue that causes a lot of confusion among prospective clients. Florida has an additional twist to equitable distribution of marital assets. If the court awards a cash payment for the purpose of equitable distribution of assets, payable either in full or in installments, the full amount vests upon entry of judgment, and is not dischargeable. I wonder how many other state statutes have similar provision.