What Happens To Divorce-Related Debts In Bankruptcy?

  • Divorce-Related Debts In Bankruptcy

What Happens To Divorce-Related Debts In Bankruptcy?

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If you are going through financial troubles and have debts due to divorce, it is important to find out which of them can be discharged. Since the way debts are discharged in different bankruptcy chapters varies, it is important to determine how marital obligations will be discharged before choosing the bankruptcy chapter. On average, 50% of all marriages end in divorce. The financial impact of divorce, along with loss of employment, and medical debts, often leads to bankruptcy. However, unlike general unsecured debts, debts generated due to divorce proceedings are treated differently. While bankruptcy filing is a tough decision, having additional debts due to divorce filing can make things more complex.

Are all debts discharged on bankruptcy filing?

People presume that all your debts will be discharged when you file for bankruptcy. Unfortunately, that is not the case. Criminal penalties, taxes that have been incurred recently, and student loan debts are some of the debts that are not discharged. However, there are special rules for debts that result from divorce litigation. For example, obligations for child support or alimony cannot be discharged in bankruptcy. Unfortunately, certain debts are incurred while supporting the spouse. For example, a promise to pay an estranged spouse’s rent or car payments is an additional expense apart from the alimony paid. As a result, several cases are filed regarding the non-dischargeability of these debts as they serve an equivalent function of supporting the estranged spouse.

Dischargeability of non-support marital debts

Until the mid-1980s, debts incurred to support the spouse in divorce litigation were not treated specially. However, in the past 30 years, an additional category of non-dischargeable claims from family law litigation has been granted protection against discharge. Such debts are characterized as marital debts and arise from divorce litigation or settlement agreements. The nature of these debts should be non-dischargeable, and they must be payable to the former spouse. However, if the debts are payable to any other person, including former in-laws or credit card companies, they can be considered dischargeable. Marital debts are not dischargeable in bankruptcy cases filed under chapters 7, 11, and 12. However, they can be discharged if you have filed for Chapter 13 bankruptcy. Since you end up paying some part of your debt in this case, the discharge awarded in Chapter 13 bankruptcy is somewhat broader than that given in other bankruptcy chapters. Thus, if a Chapter 13 bankruptcy filer pays even up to 50% of their general unsecured debts, the remaining unpaid balance, including the marital debt, is discharged.

If you are looking for ways to get rid of your financial problems, filing for bankruptcy can be an excellent option. However, the chapter you choose will depend on your current debts or whether you can afford to repay some of them. For example, Chapter 13 bankruptcy offers an excellent chance for people to catch up on child support or alimony payments which otherwise will not be discharged. The debtor can stay current on the support payments while the arrearages are paid off gradually through the repayment plan. Consulting an experienced bankruptcy lawyer can help you navigate the murky waters of debts and financial obligations. You can call 888-297-6203 to know how bankruptcy lawyers in Dallas can help you with marital debts.