Unfortunately, bankruptcy law in New York is heavily restricted in its ability to alter or discharge the debts established by divorce judgments and agreements. Both alimony and child support payments are given total protection and must be paid as agreed upon in both chapter 7 and 13 bankruptcies.
Full Answer
Are divorce-related obligations dischargeable in bankruptcy?
If a divorce-related obligation is determined to be a DSO, the debt will not be dischargeable in either a Chapter 7 or Chapter 13 Bankruptcy.
Is indemnification debt dischargeable in bankruptcy?
The dischargeability of this indemnification debt is dependent on the type of underlying debt. If the underlying debt is dischargeable (e.g. a property settlement debt in a Chapter 13 bankruptcy), then the indemnification debt would be dischargeable as well.
Can I file bankruptcy if I have debt?
Although an individual can file under Chapter 11 or Chapter 12 of the Bankruptcy Code, an overwhelming majority of individual debtors file either Chapter 7 or Chapter 13 bankruptcies. When an individual files a bankruptcy, the most basic reason is to eliminate debts by receiving a discharge.
What to do if your spouse owes you money after divorce?
If your spouse owes you money based on a divorce-related debt, you should contact an attorney that practices in personal bankruptcy to ensure that your rights are protected. Clearly Label and Describe Debts First and foremost is to properly label marital debts and clearly state the intention of the parties or the court.
Can domestic support be discharged under Chapter 7 bankruptcy?
It is also stated under some sections of the bankruptcy law that some domestic support obligations may not be discharged under a chapter 7 bankruptcy or a chapter 13 bankruptcy. As a matter of fact, most domestic support obligations must be caught up when chapter 13 bankruptcy. PNB Parivar. Payments must be current in order to receive a discharge.
Is domestic support discharged in Chapter 7?
In a chapter 7 bankruptcy, a domestic support obligation will likely not be discharged. Section 5 indicates that a debt is not dischargeable if it is owed to a child, a former spouse or a spouse in the course of a separation or divorce. Chapter 13 bankruptcy is different from chapter 7 bankruptcy. It does not have the same limitations. Section 5 does not apply to chapter 13. Therefore, a property settlement debt maybe discharged like any other debt. The court will look at the following factors to make a determination.
Can you file Bankruptcy on Divorce Settlement?
At the same time, there are exceptions to this. Plus, there are ways to protect a non-filing spouse during bankruptcy proceedings.
Why were attorney fees accrued in bankruptcy?
In a 2010 bankruptcy case involving attorney’s fees which were accrued because of a visitation dispute between the grandparents and the mother of the children, the bankruptcy trustee ruled that the attorney’s fees could be discharged in bankruptcy. And because the attorney’s fees were not related to “domestic support” debt, ...
Can you file for bankruptcy if you have alimony?
A matter of fact, any debts related to divorce but not related directly to the alimony, support or maintenance of the spouse or children may be dischargeable in a Chapter 13 bankruptcy case, but not in any other chapter.
Can a spouse be discharged from bankruptcy?
However, many bankruptcy courts have been inconsistent when determining the dischargeability of debts which are not directly tied to “domestic support” obligations. While some bankruptcy judges rule that debts not directly tied to support of the spouse or child are dischargeable in bankruptcy, other judges have shown some flexibility in that regard.
Can a debtor discharge divorce debt?
Below are some examples of situations where a debtor might be able to discharge divorce related debt: The debtor who incurs debts because an award is made against them to offset assets which were given to them by the other spouse may be able to discharge those debts in bankruptcy.
Have Questions Regarding Divorce and Bankruptcy?
If you have any questions regarding divorce and bankruptcy you can always give us a call, submit your questions here or even set up a free consultation.
How does bankruptcy affect divorce?
Bankruptcy Can Affect a Divorce Settlement / Advantages, Disadvantages, and Misunderstandings of Bankruptcy. You can use a Chapter 13 plan to catch up on child support arrearage or spousal maintenance support (alimony) arrearage. If you have received a Chapter 7 bankruptcy discharge, you may still be obligated to relinquish to ...
What happens to your tax refund when you file bankruptcy?
JS: Because, when you file bankruptcy, the bankruptcy trustee takes control and possession of all of your assets until they are abandoned or are determined to be exempt. Certain portions of a tax refund may be exempt, but usually it is a non-exempt asset.
What happens when you get discharged from Chapter 7?
So, when people receive their Chapter 7 discharge, they sometimes forget about their non-exempt assets, because they might not have received their tax refund at the time they filed their case, but they have accrued their rights to at least a portion of their tax refund. That portion is what becomes an asset.
How long do you have to file Chapter 13?
CH: Sometimes people must file Chapter 13 case because it has been less than eight (8) years since they filed a previous Chapter 7 case, which renders them ineligible to file another Chapter 7 until it has been more than eight (8) years since the date of filing the previous Chapter 7 case. In other words, if they desperately need debt relief during that eight-year time frame, they must file for relief under Chapter 13 of the U.S. Bankruptcy Code.
Can you file Chapter 13 bankruptcy?
CH: You can file a Chapter 13 anytime, but a debt will not receive a discharge unless the new case is filed more than four (4) years after the filing of the previous Chapter 13 case. Also, some debtors are rendered ineligible for a Chapter 7 case because they earn too much money to qualify for a Chapter 7 case because of something called the Means Test. In other words, the computer program we use determines that a debtor has the ability to pay back a significant portion of their debt; therefore, they are not allowed to discharge certain debts in their entirety under Chapter 7 of the U.S. Bankruptcy Code. As a result, they must file a Chapter 13 case and pay back as much of their debt as they can afford during a five-year plan.
Can a Chapter 13 bankruptcy discharge a property settlement?
Because the obligation to the ex-wife appeared to be a property settlement, and because Chapter 13 of the bankruptcy code allows a debtor to discharge property settlement debts, I urged this particular client to file a Chapter 13 case, rather than a Chapter 7 case, so he could seek the discharge of this property settlement debt to his ex-wife.
Is alimony a nondischargeable debt?
There was absolutely no language in the agreement that indicated it was in the nature of alimony or maintenance. The reason that’s significant is that anything that’s in the nature of alimony or maintenance is a nondischargeable debt, whether you file for a Chapter 7 or Chapter 13 bankruptcy. (Child support is another example of a nondischargeable debt.) In this particular case, the Judge awarded $900 per month to the ex-spouse as a way to equalize the respective value of their respective retirement accounts, because his was worth more than hers.
What happens after bankruptcy?
After the sale, any outstanding debt is discharged and you are no longer responsible for paying it. No property is sold in a Chapter 13 bankruptcy. Instead, a repayment plan is put into place based on your income, to be paid over time.#N#Read More: What Happens After Bankruptcy Discharge?
How does a divorce work?
Most states allow couples in a divorce to specify by agreement how marital debt should be divided. If they cannot agree, the court will apportion the debt based on state law. Some states treat debt as community property and divide it equally between spouses, while other states allocate the debt according to what is considered "fair." In considering what is fair, a court will look to several factors, including each spouse's ability to pay.
What is an indemnification clause in a divorce?
In cases where a couple co-signed on a debt, such as a car loan, either the parties or the court may insert an indemnification clause into the divorce decree or settlement agreement. These provisions are meant to protect against a scenario wherein the debt balance is assigned to one spouse who then discharges the debt through bankruptcy, leaving the other spouse potentially liable to the creditor. Thus, an ex-spouse is prevented from later arguing during a Chapter 7 bankruptcy that the debt was not made in connection with a settlement agreement or divorce decree. The indemnification clause creates a new obligation at the time of divorce and is not dischargeable.
Can you discharge debts in Chapter 7 bankruptcy?
Federal law provides specific exceptions to discharge for marital debts. In a Chapter 7 bankruptcy, if the bill was either incurred during a divorce or separation or in connection with a marital settlement agreement, divorce decree or other court order, it is not dischargeable. This covers most bills and includes unsecured debt, such as credit cards, which are normally dischargeable. By contrast, this exception does not apply to Chapter 13 bankruptcy filings, which does allow discharge of unsecured marital debts, even those incurred during the divorce.
Does indemnification protect against discharge of co-signed debt?
This means that the indemnification provision would not protect against discharge of a co-signed debt. In fact, the only recourse a spouse has in this instance is to participate in the case and try to persuade the court that the debt is either a DSO or the repayment plan must include the debt to ensure the total amount to be repaid equals or exceeds that which would be recovered in Chapter 7 liquidation.
DOMESTIC SUPPORT OBLIGATIONS
The Bankruptcy Code exceptions to discharge of divorce debts are divided into two categories. One category is domestic support obligations. The other is property-settlement obligations.
PROPERTY SETTLEMENT OBLIGATIONS
The other chief category is property settlement obligations. Virtually all property settlement obligations and other divorce related obligations are non-dischargeable in a Chapter 7 bankruptcy.
How to determine if a divorce debt is dischargeable?
The primary question that needs to be asked when determining whether a divorce-related debt is dischargeable is if the debt is a Domestic Support Obligation (DSO). The Bankruptcy Code defines the domestic support obligation at 11 U.S. Code § 101 (14A). The simple version is any child support, alimony, or any other payment that is “in the nature of alimony, maintenance, or support” will be a DSO. The Bankruptcy Court will look to federal law to make this determination, and will look past any labels that may have been used in the divorce agreement or order. The determination is a case-specific determination of whether the intent of the parties or the divorce court was for the obligation to be the nature of support.
What happens if a spouse is obligated to pay a divorce debt?
If a spouse is obligated to pay a divorce-related debt, the indemnification language would make it near irrefutable that the non-filing spouse has legal standing to challenge the treatment and classification and dischargeability of a debt included in the filing spouse’s bankruptcy.
What is a hold harmless debt?
Hold-Harmless Debts. When an order or agreement contains language that orders Spouse A to hold harmless or indemnify the Spouse B for a debt that Spouse A is to pay, the Court is creating a potentially non-dischargeable debt – the indemnification debt from Spouse A to Spouse B.
Why was Giddens' debt not dischargeable?
The court denied some of the grounds but ultimately, agreed that Giddens debt was not dischargeable because it was procured through fraud. More specifically, the court found that at the time Giddens entered into the marital settlement agreement, he had no intention of living up to his obligation to pay and transfer property to Morales.
What to consider when drafting a divorce agreement?
Protecting the Non-Filing Spouse in a Chapter 13. There are several items that should be considered when drafting a divorce agreement or judgment and trying to avoid issues and protect the non-filing spouse in case of a Chapter 13 filing.
How to protect a client in a divorce agreement?
Another way to protect a client in a divorce agreement or order is to reserve the issue of alimony for failure to abide by the orders of the court, including payment of the debts.
What is the purpose of filing bankruptcy?
When an individual files a bankruptcy, the most basic reason is to eliminate debts by receiving a discharge. In a Chapter 7, the individual eliminates unsecured debts (such as medical and credit card debt) and keeps property that is exempt. In a Chapter 13, the debtor proposes a plan to pay back certain types of debt over a three to five year period, can catch up delinquent loans on secured property, and can keep non-exempt property. In either a Chapter 7 or 13, the debtor receives an order at the conclusion of a successful case that discharges (eliminates) any remaining debt. However, some debts may be non-dischargeable, and high among the non-dischargeable debts are debts related to divorce.
What happens to the income in Chapter 13 bankruptcy?
In a Chapter 13 bankruptcy case, the court determines how much disposable income the filer has to put toward his or her repayment plan. Filing for divorce and acquiring new financial obligations, like alimony and child support, will reduce the amount of disposable income an individual has available. This can alter his or her repayment plan and even ...
What to do if you are going through Chapter 13?
If you are working through Chapter 13 and considering divorce, or if you are going through a divorce proceeding and are considering filing for bankruptcy, talk to your bankruptcy lawyer about the specific ways you can expect the divorce to affect your bankruptcy.
Can you discharge alimony debt in bankruptcy?
You cannot discharge alimony debt or child support debt through bankruptcy. However, in certain circumstances, you can discharge other personal debts, like credit card debt and debt you owe your former partner for reasons other than alimony or child support, like buying out a share of your family home. Your lawyer can discuss which debts are dischargeable and which are not with you to help you determine whether bankruptcy is the right choice for your debt management.
Can a divorce court divide assets in bankruptcy?
The Divorce Court Cannot Divide Assets in the Bankruptcy Estate. When you file for bankruptcy, your non-exempt assets go into the bankruptcy estate. This is the pool of legal and equitable interests you hold at the time of the bankruptcy. Once property is in the bankruptcy estate, a divorce court cannot divide it between spouses.
Can a former spouse become a creditor?
A Former Spouse Can Become a Creditor. When a divorce settlement leaves one spouse indebted to the other, the spouse who is owed money can become a creditor in the other spouse’s bankruptcy case. This means that the debt the filing spouse owes his or her former partner is covered by the bankruptcy case and the owed spouse’s rights ...
When do you get discharged from non support divorce?
As we said above, you don’t get the discharge of debts until the end of the case . So you have to get to the end successfully to discharge the non-support divorce debt. There’s a risk that you would not get to the discharge.
Can my ex-husband collect on my debt?
Usually your ex-spouse can’t do anything to collect on that debt in the meantime. So the delay may not be much of a practical problem. But you’re still living in a sort of limbo in the meantime.
Is Chapter 13 riskier than Chapter 7?
That’s because they involve a monthly payment plan that you and your lawyer put together, it gets court-approved, and then you pay on it for 3-to-5 years. In the right situations a Chapter 13 case can accomplish much more than Chapter 7. But there are more things that can go wrong.
Can you write off non support debt in Chapter 7?
Last week we explained how Chapter 7 cannot write off non-support divorce debts, but Chapter 13 can. We said if you owe a significant debt created by your divorce decree (for other than child or spousal support) you should talk with a bankruptcy lawyer. Don’t necessarily think that Chapter 13 is your best option with this kind of debt. Chapter 13 has advantages and disadvantages. We get into these now so you can start to see which option is best for you.
Chapter 7 and Chapter 13 Bankruptcy Information
Obligations Related to Domestic Support
- The question of domestic support is a common one when filing bankruptcy. Domestic support is considered alimony and child support, or any monies related to maintenance of the family. The court will take a look at federal law in order to determine what debts related to divorce are dischargeable. It is a case specific determination. It also is dependent on the intent of the partie…
Property Settlement
- In a chapter 7 bankruptcy, a domestic support obligation will likely not be discharged. Section 5 indicates that a debt is not dischargeable if it is owed to a child, a former spouse or a spouse in the course of a separation or divorce. Chapter 13 bankruptcy is different from chapter 7 bankruptcy. It does not have the same limitations. Section 5 do...
The Way The Court Looks at Debt
- If there is a situation where the ex-wife still lives in the house and the husband has moved out, the husband would then be responsible to make the mortgage payments. The court would interpret this as a domestic support obligation. This domestic support application would not be dischargeable under a chapter 7 bankruptcy or a chapter 13 bankruptcy. If the husband was to p…