Divorce is one of the leading causes of bankruptcy. People often have questions about how to deal with debts from their divorce. Depending on how a debt is categorized in the divorce decree, you might be able to wipe it out in bankruptcy, or it might stick around.
1. Child support and maintenance cannot be discharged in Chapter 7 bankruptcy. Certain debts in bankruptcy are called “domestic support obligations,” including child support and spousal maintenance/alimony. These debts can never be discharged in bankruptcy, and are also “priority” debts, meaning that if the trustee gets any money from you, those debts are paid off first.
2. Debts incurred in a divorce cannot be discharged in Chapter 7 bankruptcy (although they can be in Chapter 13). Any other debt created by a divorce cannot be discharged in Chapter 7. This includes property settlements or “equalizers.” Also, certain obligations by one spouse to pay marital debts can be considered non-dischargeable. To figure this out, you’ll want to look for “hold harmless” language in your decree, which describes what obligations won’t be discharged.
3. Some divorce lawyer fees are dischargeable in Chapter 7, some are not. If you owe fees to your divorce lawyer when you file bankruptcy, that debt is wiped out in bankruptcy. You may be ordered to pay your ex-spouse’s attorney’s fees by the court, and that debt might be non-dischargeable in bankruptcy because you’re paying attorney’s fees to “support” the ex-spouse.
4. Family lawyers should pay attention to the wording they use in divorce decrees. As described above, words matter in a divorce decree. Depending on how a debt is described, it might be dischargeable or non-dischargeable in bankruptcy. Make sure your lawyer is thinking about these issues when going through a divorce with a significant amount of debt.