Discharging Divorce Property Settlement or Support Obligations

Two federal statutes govern the dischargability of alimony, support obligations, or property division.  11 USC 523(a)(5) creates an exemption to discharge in both Chapter 7 and Chapter 13 cases for “Domestic Support Obligations”.  11 USC 101(14A) defines a domestic support obligation as debts that are “in the nature of alimony, maintenance, or support”.  11 USC 523(a)(15) creates an exemption to discharge in Chapter 7 cases for debts to a spouse, former spouse, or child of the debtor, but not domestic support obligations, that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record.  523(a)(15) obligations can be discharged under a Ch 13 case but not under a Ch 7.

Certain types of debts require that an Adversary Proceeding be brought to demonstrate nondischargability, however, neither 523(a)(5) nor 523(a)(15) debts fall into that category.  523(a)(5) and 523(a)(15) debts are nondischargable as a matter of law even in the absence of an adversary proceeding.  The reason for bringing an adversary action in a Chapter 13 case is to demonstrate what percentage, if any, is dischargeable under 523(a)(15) as opposed to nondischargable 523(a)(5).

In a Chapter 13 case, it is important to remember that the phrases “alimony in lieu of property division” and “support alimony” have different meanings under the law. Courts have interpreted “alimony in lieu of property division” to mean something other than “support alimony,” and have found that § 523(a)(5) does not apply to alimony in lieu of property division, because it is essentially money to be exchanged as part of the divorce court’s attempt to equalize the property received in the divorce”.  In re Loper, 329 B.R. 704 (2005).  An indebtedness cannot be transformed into nondischargeable “alimony” merely by entitling it such but must be actually in the nature of alimony, maintenance or support. In determining whether an obligation is of the nature of nondischargeable alimony, the courts use the following four-part test: (1) if the agreement fails to provide explicitly for spousal support, the court may presume that the property settlement is intended for support if it appears under the circumstances that the spouse needs support; (2) when there are minor children and an imbalance of income, the payments are likely to be in the nature of support; (3) support or maintenance is indicated when the payments are made directly to the recipient and are paid in installments over a substantial period of time; and (4) an obligation that terminates on remarriage or death is indicative of an agreement for support. In re Sampson, 997 F.2d 717 (1993).

If you are considering bankruptcy but have some form of a support obligation, it is important you consult experienced legal counsel.  The difference between a Chapter 7 and a Chapter 13 case could mean the difference between discharging an obligation and being forced to pay the debt in full.