Before deciding if a debt can be discharged in a bankruptcy, it must be determined whether the debt is a type that can or cannot be discharged. This sounds simple enough but when it comes to divorce and whether or not a debt is a domestic support obligation, it can be much more complicated.
As previously discussed in Cynthia Lawson’s blog post of 3/1/2013, there are two types of debts owed to an ex-spouse 1) a domestic support obligation which is defined in 11 U.S.C. §101(14A) and 2) a property settlement obligation. Domestic support obligations are not dischargeable in either chapter 7 or chapter 13 bankruptcy. However, determining whether a debt is a domestic support obligation can be a little trickier thus meaning that you need an attorney to help you wade through your divorce documents to determine if a debt is a domestic support obligation and which chapter of the bankruptcy code would best suit your situation.
The Sixth Circuit Court of Appeals has instructed courts to review the following factors to determine if an obligation, including a non-designated obligation, is in the nature of support:
(i) a label such as alimony, support or maintenance in the decree or agreement;
(ii) a direct payment to the former spouse, as opposed to the assumption of a
third party debt; and
(iii) payments that are contingent upon events such as death, remarriage, or eligibility for social security benefits.
In re Cummings, 523 B.R. 93, 103 (Bankr. W. D. Mich, 2014) citing, Sorah v. Sorah (In re Sorah), 163 F.3d 397, 401 (6th Cir. 1998); see Rugiero v. DiNardo (In re Rugiero), 502 Fed.
Often times when you go through a divorce, you are not contemplating bankruptcy. The wording and language used in the divorce documents can be up for interpretation by the bankruptcy court if the intent of the state court was not precisely written in a final decree of divorce or a marital dissolution agreement. The Bankruptcy court is permitted to consider the facts and the state law that were before the state court at time of the divorce but the bankruptcy court is encouraged to determine what the state court intended at the time of divorce. Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1110(6th Cir. 1983).
Because of other debt you may owe, it may be best that you still file a bankruptcy even if marital debt is a domestic support obligation found to not be discharged. All Bond & Botes offices offer a free consultation with an experienced attorney who can review divorce documents and help you best determine if you need to file a chapter 7 or a chapter 13. It may also be advisable that you speak to one of our attorneys if you are in the early stages of divorce before you agree to anything in your divorce.
Heather Ellis Banks is an Associate Attorney at the Bond & Botes Law Offices in Knoxville, Tennessee. She holds a Bachelor of Science from the University of Tennessee Knoxville, and a Juris Doctorate from the University of Memphis, Cecil.C. Humphreys School of Law. She has been helping consumers to navigate through the bankruptcy process since 2005. Read her full bio here.