Bankruptcy & Divorce: Property Settlements

One change brought by BAPCPA made the choice of chapter in bankruptcy much clearer:  the amendment of §523(a)(15).   Read  with §523(a)(5), now all debts to a spouse, former spouse or a child, incurred in connection with a divorce or separation are non dischargeable in Chapter 7.

To see what’s dischargeable in Chapter 13, you need to go to § 1328(a).   All debts provided for by the plan are dischargeable, it begins, except…..  Lo and behold,§523(a)(15)  is not one of the exceptions to the 13 discharge.

Thus Chapter 13 can discharge the debtor’s obligation to pay  a  former spouse to equalize the division of marital property.  Twice in the past year, that’s been of critical importance to my clients who were awarded the family home and an obligation to pay the other for the equity in the house at the time of the divorce.  Enter the housing crash, and the house is no longer worth paying for equity that is not there.  Chapter 13 was the answer.

Support remains non dischargeable in either chapter.  Decisions have further defined support to include the attorneys fees payable to the supported party to get the support order as well.

Before 2005, §523(a)(15) allowed for the discharge in 7 of non support debts arising out of a divorce if the equities favored the debtor.  No longer do we have to assess the likelihood that the debtor is more needy of the discharge than the ex is of the property settlement.

It’s a bright line, now.

Image courtesy of NASA.

 

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  • http://www.facebook.com/people/Frank-Vosholler/843055152 Frank Vosholler

     If the value of the house dropped that much, they could always petition the court to readjust the marital distribution do to change of circumstances.  If they have a lot of credit card debt and barely are making it a chapter 13 plan would never get confirmed.

    • Cathy

       Each case is dependent on its facts.  I would want to know what the cost of the readjustment in family court might be relative to the cost of the bankruptcy.  I’m not sure that the amount of the credit card debt makes a difference in the era of the means test and pot plans.

  • http://divorcesettlements.com.au/diligent-negot-divorce-settlement/ Divorce Settlements

    Usually the most demanding section of the Divorce Settlement certainly is the split
    connected with marital assets. The legal professionals will assure that all of
    the possessions are outlined and part of the negotiations.