Kentucky Bankruptcy Law

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Settlement strategies in divorce with an eye to bankruptcy

As a follow-up to my prior post on domestic support obligations, I wrote a post on my family law blog that goes into a little more detail on strategies to keep in mind in reaching a financial settlement.  This is worth reading if you are in a pre-divorce situation where bankruptcy seems likely.

February 1, 2012 Posted by | Uncategorized | , , , , , , | 1 Comment

Domestic Support Obligations: child support, alimony, and equitable distributions

There are two different sorts of domestic support obligations defined in the bankruptcy code.  The first kind of domestic support obligation encompasses things such as child support payments and alimony (called maintenance in Kentucky).  The second sort comes from an equitable distribution of property subsequent to a divorce. The term “domestic support obligation” first appears in 11 USC Sect. 101(14A), but these two different kinds of domestic support obligations only become apparent when one looks at how they are treated in terms of discharge of debt.

At first glance at 11 USC 523(a)(5) & (15) it looks like these two types of domestic support obligations are treated the same. That is to say, neither child support and alimony type obligations nor equitable distribution of property appear to be discharged in bankruptcy. This is true when it comes to Chapter 7 liquidation type bankruptcy. However, it is a different story in Chapter 13, but one has to look at the bankruptcy code carefully to discern this difference.

So, now we have to turn to 11 USC Sect 1328(a)(2) to see the rest of the story. This oddly written statute basically says that all debts except for certain ones get discharged once all the plan payments are made. The specific provision mentioned includes 11 USC Sect 523(a)(5) as an exception that does NOT get discharged. However, that provision conspicuously leaves our 11 USC Sect. 523(a)(15). This latter provision, 523(a)(15) pertains to equitable distribution of assets subsequent to a divorce.  

Bottom line: if you agree to let you soon to be ex-spouse pay you later for your share of equity in the marital residence, then you may end up loosing out if he or she ends up in a Chapter 13. That chunk of equity may well end up being treated as a general unsecured debt receiving only pennies on the dollar. However, child support and alimony (maintenance) will not be discharged in a Chapter 7 or a Chapter 13.

February 1, 2012 Posted by | Uncategorized | , , , , , , , , , | 8 Comments