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Secure you marital award from being discharged in bankruptcy with an equitable lien or a recorded mortgage.

by Dorota Trzeciecka on November 6th, 2016

Domestic support obligations, such as alimony and child support, is not dischargeable in either Chapter 7 or Chapter 13 bankruptcy.  But, a marital debt that is not in the nature of domestic support obligation can be avoided or limited as an unsecured claim in Chapter 13 bankruptcy.  So, how can a former spouse protect her/his marital award from being discharged in bankruptcy by the other former spouse?  By making the marital award a secured debt.  For example, if, in the divorce settlement agreement, the parties express an award of interest in the marital home as a monetary value, the obligation should be secured by an equitable lien against the marital home, or an actual recorded mortgage.  Otherwise, the other former spouse can avoid that marital obligation altogether  if he files Chapter 13 bankruptcy, or can limit it as an unsecured claim, with the balance, if any, discharged upon the completion of his/her Chapter 13 plan.  That is because creditors’ claims in bankruptcy are paid according to priority.  Domestic support obligation and creditors with secured claims, such as liens or recorded mortgages, get paid first, while the unsecured creditors get paid last, on pro rata basis, and only if the debtor has any disposable income left over after the payment of secured liens, like an equitable lien or a recorded mortgage already mentioned.  That’s why it is important to secure the interest in a marital property  by an equitable lien or a recorded mortgage to protect marital award from being discharged in bankruptcy.