What divorce-related obligations can you discharge in bankruptcy?
Financial issues can contribute to strains in a couple’s marriage. It’s not unusual for someone to consider filing for bankruptcy as they’re also headed toward divorce or have already begun the divorce process. Sometimes people file for bankruptcy after they’ve divorced, but they still have obligations to their former spouse that were ordered as part of their divorce agreement.
It’s essential to know what divorce-related obligations are dischargeable in bankruptcy and which aren’t. At one time, child and spousal support were the only nondischargeable divorce-related obligations. However, Congress has updated the Bankruptcy Code to make other obligations nondischargeable as well.
The first test for a court of whether to discharge a divorce-related debt to a spouse is whether the spouse who owes it is able to pay. If they aren’t, then it can be discharged.
If it’s determined that the debtor spouse is able to pay it, the next test is which is greater if it’s discharged: the harm done to the spouse who’s owed the money or the benefit to the spouse who owes it. Under the law, the court needs to consider that the “benefits of the debtor’s discharge should be sacrificed only if there would be substantial detriment to the nondebtor spouse that outweighs the debtor’s need for a fresh start.”
Bankruptcy courts can look at several factors when making this decision. Among these are the following:
- The income and net worth of the former spouses (and their current spouses, if any)
- Both spouses’ obligations
- The age, health, education, training and job skills of both former spouses and their current spouses
- The number, ages and special needs of the current dependents of both former spouses
It’s essential to discuss any court-ordered obligations arising from your divorce (or any that you anticipate if your divorce hasn’t been finalized) with your bankruptcy attorney. They can provide valuable advice based on your specific situation.