WHAT BANKRUPTCY CAN’T
DO: Divorce Debt? Domestic Support Obligations part 2
Bankruptcy helps relieve the burden of credit card and loan
debts, medical bills, back utilities and rent, and so forth.
But there are some debts that bankruptcy does not affect;
that are “immune” from a bankruptcy discharge - the word is
“non-dischargeable”. This means that when the smoke clears and the bankruptcy
is over, these debts will still have to be paid.
My previous blogs were about taxes, traffic fines, speeding
tickets, student loans and all the various types of what I call Intentional
Debt.
Last time I spoke of Child Support, Alimony,
Maintenance and Domestic Support Obligations. That was the introduction. Now I will talk specifically
about Chapter 7 (and 11 and 12).
Child Support, Alimony and Maintenance survives Chapter 7. If
you are current, if you are behind, if the debt is being collected by the
state, or even assigned to the state in exchange for public aid; it will
survive bankruptcy.
“My money isn’t even going to the kids or to my ex! It’s
going to build the governor’s swimming pool!” Likely true … but it still
survives bankruptcy.
***
But what if you were ordered to pay
other people (friends or former in-laws), a credit card or the vet bill?
Whether it was written in the actual divorce decree, the settlement agreement,
ordered by the judge or in any way connected to the dissolution or separation;
if it was for a credit card, a personal loan by a friend or family member or
one of those loan companies at the strip mall, back utilities, medical bills
for the children, vet bills for the pets; ANYTHING you are ordered to pay in
the divorce/dissolution case is a DSO in a Chapter 7, 11 or 12. Period. And
they survive a bankruptcy.
Okay, got it. But what does that
mean?
I must admit that when I say “DSOs
survive Chapter 7”; it is a simplistic short-cut. It’s like saying the firing
on Fort Sumter started the Civil War: it is true in a way, but it is much more
complicated.
The debt itself does NOT actually
survive the bankruptcy; your obligation to pay the debt survives the
bankruptcy. Your responsibility to protect your ex from collection activities
survives the bankruptcy.
As soon as the MasterCard or the
hospital receives notice that you file for Chapter 7 (or 11 or 12 or13)
bankruptcy, they have to stop all collection activity against you.
YOU.
NOT the codebtor. When the bankruptcy
is completed (or during the bankruptcy, but only if the company files the
proper paperwork with the court) they can begin or resume collecting on the
codebtor. If the debt is a DSO, the codebtor can go back to the divorce court
to enforce the divorce/dissolution Order. The debt was discharged, but your
obligation and responsibility as to the debt remains!
“The Discover card that HE was
ordered to pay in our divorce papers has sued me and garnished $500.00 from my
paycheck!”
He will likely be ordered to pay her
that $500.00 she was forced to pay Discover.
***
“But the MasterCard is in my name
ONLY, not hers (or his).” Are you sure? Double check. If that is the case you
are lucky, because your responsibility to protect the codebtor doesn’t really
exist. When you file bankruptcy, the MasterCard company cancels the debt. Your
ex-spouse? The MasterCard will not go after him. If the company tries to
collect on your ex-spouse, and she is NOT a codebtor, she has no more
obligation to pay on the debt as your neighbor or your second cousin.
True the credit card company may TRY
to collect from the ex-spouse. “Did you ever use it? Don’t you feel morally
obligated to pay?” Don’t let them trick
you – the answers are NO.
But you better make sure he/she is
NOT a codebtor on the bill!
Remember: the responsibility of protecting the
codebtor does not discharge, but if there is no codebtor to protect there is no
more responsibility to pay it.
***
An experienced bankruptcy attorney
will go through the divorce paperwork with you and review any debts you have
been ordered to pay.
“This says you have to pay the
Discover card.”
“That was paid off last year with my
tax refund.”
“And a Visa.”
“I still owe that.”
“Was that in both your names?”
“No, just mine.”
“This also says she was supposed to
pay the MasterCard.”
“That was just in her name.”
In my state, a married couple is
responsible for each other’s medical bills. Especially if they were still
together when the bill was incurred.
“This says you have to pay Dr.
Smith.”
“That was her bill.”
“Were you still together at the
time?”
“Yes.” Then that would be a DSO that would survive
his bankruptcy. If he does not pay it, the hospital will try to collect from
HER. She can go into the divorce court and enforce the divorce order.
Can anything be done? Not really, not
in a Chapter 7.
Chapter 13s are different,
though. More on that next time!
***
Some Debtors do not have a problem
with these kinds of debt surviving their bankruptcy if the debts are not too
extreme. “I can handle the MasterCard with my ex if the REST of the credit
cards get off my back.” You may be asked to sign an acknowledgment saying that
you understand that. Read through any acknowledgement, but don’t be too offended
by it. The attorney is only protecting himself or herself – this is his or her
proof that they DID discuss it with you.
Copyright
2016 Michael Curry
My name is Michael Curry and I have practiced law in Mount Vernon,
Fairfield, Flora and throughout Southern Illinois since 1992. During that time,
I have helped more than 5,000 people (and businesses) overcome their financial
difficulties by filing for bankruptcy. As a solo practitioner, I will also be
happy to help protect you and your family’s future with estate planning, wills,
powers-of-attorney, real estate transactions and other legal services.
Please call or text me at 618-246-0993, email me at michael.curry.law@gmail.com or send
me a letter: 123 South 10th Street, Suite 507, PO Box
93, Mount Vernon, IL 62864
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