Can You File Bankruptcy on a Debt That You Agreed to be Responsible for in a Divorce Property Settlement Agreement?

Posted by Christy Tobin, Esq.   June 30, 2009  Bankruptcy, Case Study, Divorce   Comment

Facts: The divorced debtor, Roy, agreed to pay a judgment from the repossession of he and his ex-wife’s Dodge Durango in his divorce. After the divorce was final, Roy listed the Durango debt in his bankruptcy and Sondra, the ex-wife, did not object. The bankruptcy code does not allow for discharge of Domestic Support Obligations (“DSO”) and does not provide that any action be taken by the recipient of the DSO.

Analysis of the Law: Domestic Support Obligations are defined by the bankruptcy code (11 USC 101(14A)) as a debt that accrues before, on, or after the date of the discharge that is owed to or recoverable by a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative. Included is alimony, maintenance, or support, that is established by a separation agreement, divorce decree or property settlement agreement or order of a court (11 USC 523(a)(15).

Outcome: Fortunately for Sondra, the Kentucky Courts share jurisdiction with the Federal Courts to decide if an obligation is discharged. (Mattingly v. Mattingly, 164 S.W.3d 518 (Ky. App. 2005)). The Kentucky Court of Appeals held that Roy’s debt on the Durango was a domestic support obligation and that even though the bankruptcy had discharged the debt as to the original creditor, that creditor could still pursue Sondra for the debt. Sondra was then able to come back to the divorce court and have Roy held in contempt for non-payment on the Durango. Therefore, Roy has to pay Sondra for the debt rather than the original creditor. See Howard v Howard, 2008-CA-001059-MR (June 12, 2009) (to be published).

Tags: