When the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) became effective October 17, 2005, debts ordered in a separation agreement, divorce decree or other order of the Court became non-dischargeable. This can be reviewed in detail at 11 U.S.C § 523(a)(5) and 523(a)(15). Domestic support obligations, inclusive of alimony, child support and other debts ordered to be paid by the court, cannot be eliminated in bankruptcy regardless of whether it is ordered before, during or after the date of the bankruptcy filing. In addition, the debts cannot be eliminated regardless who is owed the debt – spouse, ex-spouse, child, guardian of the child or a governmental unit. 1 U.S.C § 101(14A).
If you are in the process of a separation and divorce, it is important to understand what you are obligating yourself to pay prior to signing the paperwork. A couple of common examples are provided below:
Example One: You and your soon to be ex-spouse have a credit card with a balance of $10,000. You and your spouse incurred this debt when trying to start a business. During the negotiations of the separation agreement, you decide to take responsibility for the credit card. You feel this is the right thing to do since you pushed the development of the business. In this case, your spouse is “held harmless” for this credit card balance. As a result, you must pay this debt.
Example Two: You and your ex-spouse own a home. Your ex-spouse and two children live in the home and want to continue to live in the property. Both of your names are on the first mortgage loan but only your name is on the second mortgage. You have agreed in the divorce decree to pay the mortgages on the home until your youngest child graduates from high school. Once again, since you took responsibility for the debts under the divorce decree, you cannot file bankruptcy to eliminate the debts on the two loans. You are now solely responsible for the debt on the house.
There are obviously many examples, but these are two of the more common scenarios we see at Duncan Law. Again, it is extremely important to assess your ability to pay prior to accepting responsibility for the debt¸ since it will not be dischargeable in bankruptcy.