He said he’d do it. He told you he’d file bankruptcy if you stuck him with the bills and the alimony in addition to the child support. Maybe you thought it was an empty threat. But now it’s happened. And, you want to know what you can do about it. Are you going to have to pay those credit cards after all? What about the mortgage payment and the car loan? Will he still have to share some of his retirement account?
First of all, take a deep breath. There’s a very good chance the bankruptcy will not affect the debts he agreed to pay or any obligations he owes you and the kids. There was a time when an obligated ex-spouse could agree to take on marital debt or promise to divide assets, then eliminate much of that responsibility by filing for bankruptcy. In the last ten years, bankruptcy has become much less useful for someone bent on dumping that debt into the lap of the party even less likely to be able to absorb it.
Types of Bankruptcy
The central question we’re trying to answer is whether the debt will be forgiven in the bankruptcy or whether your ex will still be responsible for it after the case is over. When the debt is forgiven, we say that is was discharged. Whether the debt can be discharged depends mainly on two factors: the type of obligation it is and the type of bankruptcy that was filed.
There are two types of bankruptcy a typical ex-spouse would file. Chapter 7, also called straight bankruptcy, takes about four to six months to accomplish and ends with discharge of many, but not necessarily all, kinds of debt. In exchange for the discharge, your ex may have to give up some property that will be sold to pay creditors, but probably not.
A Chapter 13 is a payment plan case in which your ex would be required to make payments over three to five years to satisfy his debts. A Chapter 13 does not guarantee that all debts will be paid in full. How much debt is paid will depend a lot on how much the debtor (the person who files the case) can afford to pay. A Chapter 13 also results in a discharge of debt.
What kind of obligation is it?
Not all debts are discharged in bankruptcy. Any debts that are not discharged will survive the bankruptcy and remain an obligation of the ex-spouse. The system is very protective of debts owed for child support, alimony and those promises that spouses make to divide property and debts.
There are generally three types of debt that arise out of a marital settlement agreement.
Domestic Support Obligation: This is what we generally think of as support, like child support and alimony.
Asset Division: This is the promise to divide assets. Sometimes the asset division can be intended by the parties as a type of alimony.
Hold Harmless (also known as Indemnification): This is the promise to pay debts that you are both responsible for like credit cards, mortgages, car notes. Under state law, this type of agreement will not absolve you of your obligation to pay those debts. Rather, your ex promises to pay so you won’t have to. If he fails to pay any of those debts, the creditor can still look to you for payment - if you were liable on the debt in the first place, but your ex will then have an obligation to reimburse you or “hold you harmless.”
To escape discharge, the obligation has to meet the definition of one of these promises as outlined in the Bankruptcy Code. A lot of the time, whether the debt or promise can be discharged will depend on how it is characterized in the settlement paperwork, but this is not always the case. A bankruptcy judge can decide that an obligation is not discharged even if the settlement agreement expressly says that it will be discharged in the event either party files a bankruptcy case.
In my next post, I will talk about what you can do to protect your rights. To have Part 2 of, Help! My Ex Filed for Bankruptcy delivered to you via email, go to our website, www.divorceresponseteam.com and sign up for our Blog. You will also receive a Free Gift, 6 Steps to Divorce Success.
If you would like to talk with someone about this situation or other issues in your divorce recovery, or to learn about how a certified divorce coach can help you and your family thrive after divorce, make an appointment with one of our certified divorce coaches today.
Carron Nicks is a Certified Divorce Coach with Divorce Response Team and Licensed Attorney. She holds a Bachelor’s degree with a major in psychology, and a Master’s degree in counseling from the University of South Alabama. She received her J.D. from Tulane Law School in New Orleans, where she was Articles Editor for the Tulane Law Review.
Divorce Response Team 2017 www.divorceresponseteam.com