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Dealing with an Unhappy Ex-Spouse Creditor

Stressed Man Working At Desk In Busy Creative OfficeA Chapter 13 bankruptcy – the 3-to-5-year legal procedure for “adjustment of debts”—can help you in two huge ways with an ex-spouse who is unhappy with you for not paying a debt you owe to him or her:

  1. It can discharge (legally write-off forever) non-support “property settlement” obligations owed to your ex-spouse through your divorce decree.
  2. It can give you time to catch up on child support, while stopping the aggressive collection tactics otherwise available to your ex-spouse and his or her support enforcement agency.

Neither of these can be done when filing a Chapter 7 “straight bankruptcy” case.

1. Discharging Non-Support Divorce Debts

Debts from a divorce decree come in two categories:

  1. obligations “in the nature of alimony, maintenance, or support,” (even if not specifically called that in the decree), and
  2. all other obligations (called “property settlement” obligations).

The first category includes child and spousal support, as well as obligations to pay ongoing expenses that are “in the nature of” support such as health insurance premiums, a portion of the ongoing medical expenses, and a child’s schooling. These can never be discharged in bankruptcy, through either Chapter 7 or 13.

The second category includes all financial obligations created by the divorce decree NOT “in the nature of” support. These are called “property settlement” obligations because their purpose is to settle the division of marital property. But “property” includes both assets and debts. So a divorce decree often includes provisions specifying which of the two spouses are to pay marital debts.

These “property settlement” debts include those 1) jointly owed by both ex-spouses to a creditor, which the decree requires one of them to pay; 2) owed by only one of the ex-spouses to the creditor, with the decree requiring either one or the other to pay it; and 3) owed by one ex-spouse to the other, often to make up for that person receiving more than his or her share of a marital asset or debt.

Although Chapter 13 cannot discharge obligations “in the nature of” support, it CAN discharge part or all of those obligations which are in the second category, the “property settlement” obligations, including the three different forms listed in the above paragraph. So if you owe a significant amount of “property settlement” debt from your divorce, Chapter 13 may well be your better option.

2. Getting Time to Catch up on Unpaid Support Payments

Unlike Chapter 7, the filing of a Chapter 13 case can stop the aggressive methods an ex-spouse or support enforcement agency can use to collect on support obligations. But for this protection to last more than just a few days, you must strictly meet a number of conditions:

  • Your Chapter 13 plan must provide for catching up on all the unpaid support during the life of the plan.
  • You must make your monthly Chapter 13 plan payments on time, demonstrating that the plan is feasible and that the back support will indeed be paid through the plan.
  • Your budget must show that you will be able to start (or continue) making the regular monthly divorce court-ordered support payments, AND then you must actually pay those on time. And very importantly, those monthly payments start with the first one that is legally due on whichever day of the month it is due immediately after your Chapter 13 is filed, and then every month thereafter.
  • At the end of your Chapter 13 case you must certify that you are current on your ongoing support payments, or else you cannot complete your case and get a discharge of your remaining debts.

These are two very significant benefits of Chapter 13, which again are not available under Chapter 7. If you would like to know more about how bankruptcy law can help with debts owed to your ex-spouse or other creditors, and you are in New Jersey, the attorneys at the Law Office of Andrew B. Finberg can help. We focus on bankruptcy. Please call us at (856) 208-4152 or use this form to set up a free, no-obligation consultation with us. Thank you for reading our blog.

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