Til Debt Do Us Part

WHAT BANKRUPTCY CAN’T DO: Divorce Debt? Domestic Support Obligations part 2

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about taxes, traffic fines, speeding tickets, student loans and all the various types of what I call Intentional Debt.

Last time I spoke of Child Support, Alimony, Maintenance and Domestic Support Obligations. That was the introduction. Now I will talk specifically about Chapter 7 (and 11 and 12).

Child Support, Alimony and Maintenance survives Chapter 7. If you are current, if you are behind, if the debt is being collected by the state, or even assigned to the state in exchange for public aid; it will survive bankruptcy.

“My money isn’t even going to the kids or to my ex! It’s going to build the governor’s swimming pool!” Likely true … but it still survives bankruptcy.

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But what if you were ordered to pay other people (friends or former in-laws), a credit card or the vet bill? Whether it was written in the actual divorce decree, the settlement agreement, ordered by the judge or in any way connected to the dissolution or separation; if it was for a credit card, a personal loan by a friend or family member or one of those loan companies at the strip mall, back utilities, medical bills for the children, vet bills for the pets; ANYTHING you are ordered to pay in the divorce/dissolution case is a DSO in a Chapter 7, 11 or 12. Period. And they survive a bankruptcy.

Okay, got it. But what does that mean?

I must admit that when I say “DSOs survive Chapter 7”; it is a simplistic short-cut. It’s like saying the firing on Fort Sumter started the Civil War: it is true in a way, but it is much more complicated.

The debt itself does NOT actually survive the bankruptcy; your obligation to pay the debt survives the bankruptcy. Your responsibility to protect your ex from collection activities survives the bankruptcy.

As soon as the MasterCard or the hospital receives notice that you file for Chapter 7 (or 11 or 12 or13) bankruptcy, they have to stop all collection activity against you.

YOU.

NOT the codebtor. When the bankruptcy is completed (or during the bankruptcy, but only if the company files the proper paperwork with the court) they can begin or resume collecting on the codebtor. If the debt is a DSO, the codebtor can go back to the divorce court to enforce the divorce/dissolution Order. The debt was discharged, but your obligation and responsibility as to the debt remains!

“The Discover card that HE was ordered to pay in our divorce papers has sued me and garnished $500.00 from my paycheck!”

He will likely be ordered to pay her that $500.00 she was forced to pay Discover.

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“But the MasterCard is in my name ONLY, not hers (or his).” Are you sure? Double check. If that is the case you are lucky, because your responsibility to protect the codebtor doesn’t really exist. When you file bankruptcy, the MasterCard company cancels the debt. Your ex-spouse? The MasterCard will not go after him. If the company tries to collect on your ex-spouse, and she is NOT a codebtor, she has no more obligation to pay on the debt as your neighbor or your second cousin.

True the credit card company may TRY to collect from the ex-spouse. “Did you ever use it? Don’t you feel morally obligated to pay?”  Don’t let them trick you – the answers are NO.

But you better make sure he/she is NOT a codebtor on the bill!

Remember: the responsibility of protecting the codebtor does not discharge, but if there is no codebtor to protect there is no more responsibility to pay it.

***

An experienced bankruptcy attorney will go through the divorce paperwork with you and review any debts you have been ordered to pay.

“This says you have to pay the Discover card.”

“That was paid off last year with my tax refund.”

“And a Visa.”

“I still owe that.”

“Was that in both your names?”

“No, just mine.”

“This also says she was supposed to pay the MasterCard.”

“That was just in her name.”

In my state, a married couple is responsible for each other’s medical bills. Especially if they were still together when the bill was incurred.

“This says you have to pay Dr. Smith.”

“That was her bill.”

“Were you still together at the time?”

“Yes.”  Then that would be a DSO that would survive his bankruptcy. If he does not pay it, the hospital will try to collect from HER. She can go into the divorce court and enforce the divorce order.

Can anything be done? Not really, not in a Chapter 7.

Chapter 13s are different, though.  More on that next time!

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Some Debtors do not have a problem with these kinds of debt surviving their bankruptcy if the debts are not too extreme. “I can handle the MasterCard with my ex if the REST of the credit cards get off my back.” You may be asked to sign an acknowledgment saying that you understand that. Read through any acknowledgement, but don’t be too offended by it. The attorney is only protecting himself or herself – this is his or her proof that they DID discuss it with you.

Copyright 2016 Michael Curry

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi

What Bankruptcy Can’t Do: Divorce Debt, part 1

Domestic Support Obligations 

Bankruptcy helps relieve the burden of credit card and loan debts, medical bills, back utilities and rent, and so forth.

In this blog series of non-dischargeable debt I have not yet described the different kinds of bankruptcy.

This blog is about marital debt. And it is the ONLY type of debt in this blog series that is treated substantially different in the two kinds (or chapters) of bankruptcy you can file. There is a difference with Intentional Debt, true; but that is the difference literally between one word – willful AND malicious (Chapter 7) and willful OR malicious (Chapter 13). A big difference, true, but the difference between the treatment of marital debt is MUCH greater.

So here is a brief review. The bankruptcy code is divided into chapters, just like any book. These are the chapters an individual person can file:

Chapter 7: liquidates/eliminates most debt. You can keep (and keep paying for) property you still owe – like cars, your house, furniture – usually as long as you are current and promise to keep making your payment.

Chapter 13: consolidates most of your debt into one payment – unsecured credit cards, medical bills, your car payment, taxes, sometimes even your house payment (especially if you are behind).

Chapter 11: This is mostly for corporations, but an individual can file a Chapter 11 if his debt exceeds the amount allowed in a Chapter 13. If you owe over $380,000.00 (or so) in unsecured debt, you can’t do a Chapter 13 and have to do a Chapter 11.

Chapter 12: Similar to a Chapter 13 but for farmers and fishermen. Most farmers and fishermen owe much more than $380,000 unsecured (and $1.1 million in secured debt); and cannot contend with the sometimes draconian rules of a Chapter 11. So Congress made the Chapter 12 – an amalgamation of a 13 and an 11.

But there are some debts that bankruptcy does not affect; that are “immune” from a bankruptcy discharge – the word is “non-dischargeable”. This means that when the smoke clears and the bankruptcy is over, these debts will still have to be paid.

My previous blogs were about  taxes, traffic fines, speeding tickets and their ilk, student loans and all the various types of what I call Intentional Debt.

Today I’d like to discuss Child Support, Alimony, Maintenance and other marital debt. The Bankruptcy Code calls it Domestic Support Obligations.

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So far in this list of non-dischargeable debts there is little difference in what kind of bankruptcy you file. The debt will either discharge or survive. The exception is Intentional Debt’s “willful and malicious” and “willful or malicious”. But this deals with the INTENT of the debt, not the definition of the debt.

For Domestic Support Obligations (DSOs), the type of bankruptcy matters a great deal as to the definition of the debt. DSOs survive Chapter 7 bankruptcy. Period. The argument in a Chapter 13 is whether the debt is a DSO or not! A debt can be a DSO in a 7 but not in a 13.

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18 USC Section 523(a)(5) & (15) of the Bankruptcy Code says:

 (a) A (bankruptcy) discharge … does not discharge an individual debtor from any debt— …

 (5) for a domestic support obligation; …

 (15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) 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 of record, or a determination made in accordance with State or territorial law by a governmental unit; …

So what is a Domestic Support Obligation? The Bankruptcy Code provides a definition in

11 USC Section 101(14A):

 The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is‐‐

(A) owed to or recoverable by‐‐

(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of‐‐

(i) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.

 ***

All right, so with all that legalese, what are we talking about? Marital Debt is anything you were ordered to pay in a divorce or separation agreement. Anything. Whether you pay it to your ex-spouse or not.

Child support, alimony, maintenance, obviously. But if you were ordered to pay other people (friends or former in-laws), a credit card or the vet bill? Whether it was written in the actual divorce decree, the settlement agreement, ordered by the judge or in any way connected to the dissolution or separation.

They are all DSOs. At least in a Chapter 7.

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Ick, you say. So what can be done about it?

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I’ll talk specifically about DSOs in a Chapter 7 next time.

Copyright 2016 Michael Curry

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About the author: Michael Curry of Curry Law Office in Mount Vernon, Illinois has helped thousands of individuals, family and small businesses in southern Illinois find protection under the Bankruptcy Code for almost twenty-five years. He is also available to help individuals and families with their estate planning (wills, power-of-attorney) and real estate and other sales transactions.

He is also the author of books on finance and bankruptcy available on Kindle through Amazon!

Whether you live in Mount Vernon, Salem, Waltonville, Woodlawn, Lawrenceville, Centralia, Louisville, Xenia, Grayville, Effingham, Dieterich, Vandalia, McLeansboro, Dahlgren, Albion, Flora, Clay City, Kinmundy, Chester, Sparta, Olney, Mount Carmel, Nashville, Fairfield, Cisne, Wayne City, Carmi, Grayville, or anywhere in Southern Illinois call Curry Law Office today at (618) 246-0993 and Finally Be Financially Free!

tags: Bankruptcy Attorney Lawyer Mount Vernon Illinois Centralia Fairfield Carmi