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When one spouse files a bankruptcy case before meeting all obligations under a marital settlement agreement, some provisions can be "discharged" or wiped out. But not all. What the bankruptcy court will discharge will depend on whether the debt is a domestic support obligation (DSO) and whether the debtor filed the bankruptcy case in Chapter 7 or Chapter 13.
Are You Considering Filing a Personal Bankruptcy? Start Here.When a marriage ends, the spouses often enter into a contract that divides the couple's assets, assigns responsibility for debts, and sometimes provides that one spouse will make payments for the support of the other spouse. The contract is called a marital settlement, a divorce agreement, a property settlement, or something similar.
Most agreements spell out the responsibilities and rights of each spouse. For instance, the agreement could require one spouse to do the following:
It's common for bankruptcy to follow a divorce. How the bankruptcy will affect an agreement will depend on its contents. Learn why it's often better to file for bankruptcy before divorcing in Divorce & Bankruptcy: Which Comes First?
Domestic support obligations aren't dischargeable in bankruptcy. The bankruptcy code defines a domestic support obligation (DSO) as a debt that is:
This broad definition includes agreement clauses providing future support, such as child or spousal support. These obligations won't be discharged in a bankruptcy case. Learn more about nondischargeable debt in bankruptcy.
By contrast, bankruptcy law doesn't protect property division agreements. But knowing whether an agreement provision provides ongoing support or a division of assets isn't always easy. In fact, bankruptcy litigation can arise to determine whether a particular obligation will be forgiven in bankruptcy. The filer will have to file for Chapter 13 bankruptcy, however (more on why below).
So, what would be considered a property division provision? When a married couple divorces, they divide the property they own together. For instance, suppose one party keeps the couple's timeshare. To do so, the spouse keeping the asset agrees to reimburse the other spouse over time.
For instance, suppose it is apparent in the agreement that the payment is to pay for the timeshare and not for support. In that case, the debt might be dischargeable in bankruptcy. (More examples are below.)
You'll likely have to file for Chapter 13 bankruptcy if you'd like to wipe out a property settlement obligation. Here's why.
Remember that many people negotiate agreements to substitute a split of property instead of a monthly alimony payment. For example, the couple could decide that one party will take ownership of the family home rather than regular support payments. Bankruptcy courts can scrutinize property settlement agreements to discern the parties' intent regardless of the language used.
Working through the dischargeability of a property settlement agreement is one of the trickier issues in bankruptcy, and it is advised that you seek the advice of a bankruptcy litigation lawyer.
Did you know Nolo has made the law easy for over fifty years? It's true, and we want to ensure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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