Divorce Debts In Chapter 13 Bankruptcies

Since public policy does not favor a person abandoning one’s dependents to the wolves, courts have been holding for over a century that child support and alimony are not dischargeable debts in bankruptcy. And since 2005 the law has been that virtually all other payments, such as property settlements, owed to one’s spouse under a divorce judgment are not dischargeable either. In some cases however the bankruptcy treatment is still stricter for child support or alimony than it will be for property settlements. This occurs for example in a Chapter 13 bankruptcy , in which an individual makes monthly payments over a three or a five year period to repay part of his debts. The different treatment arises, because child support and alimony are priority debts, and people in a Chapter 13 bankruptcy must repay 100% of their priority debts to receive their discharge. Property settlements however are not priority debts, and the Chapter 13 debtor only needs to pay back the same percentage, as he pays to his other unsecured creditors. The amount paid to general unsecured debtors in Chapter 13 is based on the ability to pay and frequently is only 10% of the debt.

With this variation in results disputes sometimes arise over whether a certain marital debt is child support or alimony rather than a property settlement. In these controversies the bankruptcy court makes this decision, and what the debt is called in the divorce judgment is not binding under the bankruptcy law. Factors considered include whether the party receiving the payments needs support and whether they are made on an installment basis. Unfortunately as the old saying goes “Hard cases make bad law,” and since a failure to support children can lead to some tragic situations, courts have not been totally consistent in these cases. Some judges for example have ruled that a judgement ordering someone to pay his former spouse’s car payments or mortgage payments create priority support debts, but other court cases have reached the opposite conclusion. This of course sometimes makes it difficult to predict in advance whether a court will rule that a debt is support rather than a property settlement.