Domestic Relations Obligations: Dischargeable or Not in Bankruptcy?

This article explains how bankruptcy law and state laws determine whether family court obligations can be discharged in bankruptcy. The bankruptcy court looks at the U.S. Bankruptcy Code and relevant state laws to make this determination. There are two main sections of the Bankruptcy Code that deal with matrimonial debt, and they were changed in 2005 to reduce litigation over family issues in bankruptcy court. However, there are still cases where the court needs to decide if a family support obligation is dischargeable or not. Overall, it’s a complex process with many nuances. A Domestic Support Obligation (DSO) is a debt for things like alimony or child support that cannot be wiped out in bankruptcy. It must be owed to a spouse, ex-spouse, or child, and it has to be established in a legal agreement or court order. If it meets all these requirements, it can’t be discharged in bankruptcy. There is also a category called Non-DSO Obligations that includes things like property settlements and distribution claims, which also can’t be discharged in bankruptcy. Both types of obligations can be decided in either bankruptcy court or state court. If you owe money for things like child support or alimony, it may not be erased if you file for bankruptcy. In some cases, it may be discharged in a Chapter 13 bankruptcy, but not in a Chapter 7 or Chapter 11. If you can’t get a plan to pay off the debt approved, you still have to pay it. And if you’re not keeping up with support payments, your bankruptcy case can’t move forward and you still have to pay what you owe. Attorneys need to figure out if the debt from a divorce or other family issue can be wiped out by bankruptcy. They should check the court order or settlement agreement to see if it’s a type of debt that can be forgiven. If it can’t be forgiven, they need to figure out the best time to file for bankruptcy. They also need to be careful about how the debt is described in the court documents, because the bankruptcy court will look at that. And the labels on the debt in the court documents aren’t the final say in the bankruptcy court. The court has to decide if a debt from a divorce is considered support or something else, which will determine if it can be discharged in bankruptcy. They look at factors like the intention of the parties, the language of the agreement, and the financial positions of the parties. In one case, a husband thought he didn’t have to pay his ex-wife $6.3 million because she didn’t get permanent alimony, but the court said the money was meant to support her and the children. In another case, a husband tried to discharge his obligation to pay the mortgage on the marital home, but the court said it was a support obligation. In Florida, not paying support can be enforced with contempt, but not complying with a property settlement. So if a Florida person comes to bankruptcy court with a contempt order from state court, the bankruptcy court might decide the obligation was for support. If someone owes their ex-spouse money for things like attorney’s fees or joint debts, they can make sure that the debt is not wiped out if the person files for bankruptcy. Their lawyer can use specific language in the divorce agreement to make sure the debt is considered non-dischargeable and a priority. This means the person filing for bankruptcy still has to pay it. It’s important to do this, because fighting the discharge of the debt in court can be expensive. In Florida, attorney’s fees can only be awarded by contract or by law, and the court will consider the financial situation of both parties before making a decision. In bankruptcy, attorneys’ fees awarded in a divorce case might not be dischargeable if they were awarded in a marital settlement agreement. This means that the person filing for bankruptcy would still have to pay those fees. There are different rules for Chapter 7 and Chapter 13 bankruptcies. It’s important for lawyers to carefully review the bankruptcy laws and the divorce agreement to see if the fees can be discharged. The laws around this issue are always changing, so it’s important to stay updated. Here are some cases that have dealt with this issue as a reference. Judge Sandy Karlan served as a trial judge in Miami-Dade for almost 20 years and now works as a mediator in bankruptcy, family, and commercial law. Robert C. Meyer is a Miami bankruptcy attorney with over 35 years of experience. This information is provided by the Family Law Section.

Source: https://www.floridabar.org/the-florida-bar-journal/domestic-relations-obligations-dischargeable-or-not-in-bankruptcy/