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Is a debt to a former spouse dischargeable in bankruptcy?

by Dorota Trzeciecka on March 15th, 2010

Dischargeability of a debt to a former spouse in bankruptcy depends on the nature of the debt.  If the debt is in the nature of child support or alimony, it is not dischargeable in either Chapter 7 or Chapter 13.  If the debt is in the nature of property settlement, sometimes also referred to as equitable distribution of assets, it is not dischargeable in Chapter 7, but may be dischargeable in Chapter 13. 

You cannot discharge a property settlement that a family court ordered you to pay as part of a divorce settlement or a divorce decree in Chapter 7 bankruptcy.  This is the type of bankruptcy that lets you discharge your debts, with certain exceptions listed in 11 U.S.C. §523 (Exceptions to discharge).  One of these exceptions is an obligation to a former spouse, other than alimony or child support, “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 …”  Thus, when the debtor spouse files Chapter 7 bankruptcy, the bankruptcy court does not need to distinguish between alimony, child support, and equitable distribution payments.   Neither is dischargeable in Chapter 7.

The same applies to money judgments related to property settlement.  If you did not comply with the terms of equitable distribution in the divorce settlement agreement, your former spouse may obtain a money judgment against you.    Even though money judgments are almost always dischargeable in bankruptcy, regardless of the facts that led to the lawsuit, the same exception to discharge applies to money judgments relating to property settlement — they are not dischargeable in Chapter 7.

There are certain debts that debtors cannot discharge in Chapter 7, but which may be discharged in Chapter 13.   Equitable distribution payments are one of those debts.  The very same money judgment, for example, which was not dischargeable in Chapter 7, may be dischargeable in Chapter 13.  Let’s say your former spouse obtained the money judgment for non-payment of equitable distribution and recorded a judgment lien certificate against exempt property to make the judgment secured.   You may be able to file a motion with the bankruptcy court, called Motion to Avoid a Lien, and request a removal of the lien.  If the bankruptcy court grants the motion, the lien is removed (or in bankruptcy jargon “stripped”).  The debt is not, however, wiped out immediately.  It becomes unsecured, and is treated on par with other unsecured debts of the debtor.  This means that your Chapter 13 plan has to provide for payments of that unsecured debt.  The payment amount will depend on the value of your non-exempt assets and on your income.  If you successfully complete the plan, the judgment will be discharged, together with other unsecured debts.

To find out if your property settlement is dischargeable in bankruptcy, contact me  at (305) 439-0464, or e-mail me at dorota@debtor-creditorlaw.com.