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Choosing Between Chapter 7 and 13 if You Owe Money to Your Ex-Spouse

The Main Differences Here between Chapter 7 and 13

Child and spousal support CAN’T be discharged (written off) under EITHER Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts.” But other kinds of divorce obligations—sometimes called “property settlement” debts—CAN be discharged, but ONLY under Chapter 13.

Also, if you are behind in your support payments, Chapter 7 CANNOT stop the collection of that arrearage by either your ex-spouse or the support enforcement agency. But Chapter 13 CAN.

So, if you owe a significant amount of “property settlement” debts from your divorce, or if you are behind on support payments, you’d be wise to get legal advice about whether Chapter 13 would be a good option for you.

Support and Property Settlement Obligations

Separation and divorce decrees can create a number of different financial obligations. The bankruptcy law divides these obligations into:

  1. those “in the nature of alimony, maintenance, or support” (even if not specifically called that in the decree)—the support obligations, and
  2. those that settle the division of marital property and debt—the property settlement obligations.

The first set of course includes regular child and spousal support. But these can also include your obligation to pay certain ongoing expenses that are “in the nature of” support, for example, all or a portion of a child’s medical expenses. This can even include the obligation to pay some of the ex-spouse’s attorney fees for the divorce, specifically the fees incurred in fighting about support-related issues.

The second, “property settlement,” set of divorce-related debts includes those not “in the nature of” support. The division of “property” includes the divorce court’s division of both assets and debts. Besides stating which spouse gets which asset, the divorce decree can create equalizing obligations, a requirement for one person to pay the other a certain amount to compensate for getting more of the assets. The decree can also order one of the two to pay the entire balance of a jointly owed debt, or to pay a debt that is owed by the other spouse.

Whether a debt referred to in a divorce decree is a support or “property settlement” obligation is usually obvious from reading the separation or divorce decree. But it’s not always clear. And if there’s a dispute about which set a debt belongs in, this is decided by the bankruptcy court not the divorce court.

The Power of Chapter 13 to Discharge of Your Property Settlement Obligations

As stated above, Chapter 13 does not discharge support obligations, but it can discharge part or all of the property settlement obligations.

For example, if your divorce decree requires you to pay a particular marital debt, such as a specific credit card otherwise owed only by your ex-spouse, generally this divorce obligation would be seen as not a “in the nature of support” but rather as a property settlement obligation. Therefore, this divorce obligation could be discharged in a Chapter 13 case (but NOT under Chapter 7).

The Power of Chapter 13 to Cure Support Arrearage

Although neither Chapter 7 nor Chapter 13 can discharge any support obligations, if you are behind on your support Chapter 13 can greatly help. Support arrearage can be collected by an ex-spouse or support enforcement agency through very aggressive means, often including the threat and reality of suspending your driver’s license, and even your occupational or professional license. Chapter 7 cannot help with this, except by discharging your other obligations so that you can catch up on the support as quickly as possible.

In contrast, the filing of a Chapter 13 case immediately stops all efforts to collect back support. It continues to do so and protects you permanently from collections as long as 1) you maintain your regular support payments from then on, 2) your Chapter 13 plan includes paying off the entire support arrearage, and 3) you in fact comply with the plan and bring the support obligation current before the end of your case.

Conclusion

So if you have a substantial property settlement obligation owed from your separation or divorce, or if you are behind on your support obligation, Chapter 13 could be your best option. If you live in New Jersey, the Law Office of Andrew B. Finberg can help you decide what is best. Please call us at (856) 988-9055. Or use this form. And thank you for visiting our website.

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