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Bankruptcy and Divorce: Nondischargeable Family Law Debts:
A. Debts for Spousal and Child Support (11 U.S.C. 523(a)(5))
Section 523(a)(5) of the Bankruptcy Code provides that the following type of debt is not dischargeable in a chapter 7 case:
[T]o a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with state or territorial law by a governmental unit, or property agreement, but not to the extent that
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such state); or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support[.]
Whether a debt is covered by 11 U.S.C. 523(a)(5) may be determined at any time and in either bankruptcy court or state court. This type of debt is nondischargeable in both chapters 7 and 13. It is also a priority claim. 11 U.S.C. 507(a)(7). In a chapter 7 case, it is entitled to be paid before priority tax debts and general, unsecured claims. However, as discussed above, since most chapter 7 cases are "no asset" cases, this priority usually has little value. In a chapter 13 case, however, priority claims must be paid in full through the plan.
B. Other Family Law Debts
Until the law was amended in 1994, nonsupport family law debts, including debts arising from property division, could be discharged in bankruptcy. In 1994, a new exception to the discharge 11 U.S.C. 523(a)(15) was adopted for a debt
not of the kind described in paragraph 5 [support debts] 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, a determination made in accordance with State or territorial law by a governmental unit unless
(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or (B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse or child of the debtor[.]
Contrast with debt excepted from discharge under 523(a)(5): A debt of the type described by 523(a)(15) is only nondischargeable in a chapter 7 case, not in a chapter 13 case. The action to determine that the debt is nondischargeable may only be filed in bankruptcy court and must be filed within 60 days of the first date set for the meeting of creditors. Moreover, this type of debt is not a priority debt and thus need not be paid in full in chapter 13.
Note the broad language describing the type of debt covered: This exception to discharge appears to cover any type of debt incurred by the debtor in the course of a family law proceeding. For example, it arguably covers a debtor's debt to his or her own family law attorney.
Also note shifting burden of proof: Most courts have held that the creditor has the burden to prove that the debt is covered by the initial broad language of 523(a)(15). Then the burden shifts to the debtor to prove that he or she is either unable to pay or that failing to discharge the debt would be more harmful to him than discharging it would be to his or her spouse. See In re Gamble, 143 F.3d 223 (5th Cir. 1998); In re Crosswhite, 148 F.3d 879 (7th Cir. 1998).
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