Divorce and Chapter 7

Bankruptcy discharges your debts, right? Maybe not. In a Chapter 7, there is a specific prohibition that affects debts ordered to be paid by a decree of divorce or in a dissolution. The bankruptcy code prevents discharge of certain debts.

As you would expect, spousal support and alimony are not discharged in bankruptcy. But there is a danger, in Chapter 7, for you if you want to discharge debt AFTER your divorce or dissolution.

The danger is found in 11 USC 523 (a) (15). This section of bankruptcy law prohibits the discharge of debts to a spouse or in connection with a separation agreement or decree of divorce.

A common example where this hurts you happens when you agree to pay a credit card in a decree of divorce, and then later seek to discharge the credit card debt in Chapter 7.

Clearly, if your decree says you are ordered to pay this debt, you will still need to deal with it even if you file Chapter 7. Divorce and Chapter 7 is not as simple as it seems.

I discussed this common mistake with Bankruptcy Judge Keith Lundin, author of an entire set of lawbooks on Chapter 13. He told me that he sees “malpractice in my court every day,” related to this mistake.

Boiled down to an over-simplified rule, you generally don’t want to file divorce and then file Chapter 7, if you want to discharge debts ordered to be paid, or in connection with, your decree.

And this is a real problem, because in Ohio, the law requires you to list ALL your debts in your decree or separation agreements. You can’t legally allowed to “leave out” debts.