Sometimes former spouses try to use bankruptcy to get around living up to the demands of a property settlement agreement.
In divorce settlements, bankruptcy law reforms make non-support obligations – property division – from a divorce nondischargeable in a Chapter 7 bankruptcy case. The recipient spouse must demonstrate that discharge of the obligation would harm him or her more than it would harm the former spouse.
Non-dischargeable means the former spouse is still responsible for it.
The recipient spouse should file a complaint in bankruptcy court to get the property settlement debt excepted from discharge. Failure to file a claim may result in the debt being wiped out irrevocably.
In a Chapter 13 case debt discharge is somewhat broader than in a Chapter 7 case. Debts dischargeable in a Chapter 13, but not in Chapter 7, include debts arising from divorce property settlements.
Bankruptcy courts differentiate a support obligation from a property settlement in a number of ways. Although there are variations by state, courts base their decisions on whether:
- payments end or decrease if a certain event happens, like remarriage or a child turning 18;
- the recipient is paid in installments or a lump sum;
- there are minor children;
- there is a need for support at the time of the divorce.
The language of the divorce decree can reduce the chance that the bankruptcy court discharges the debt. Debt labeled support or alimony in the decree has a smaller chance of being discharged.