The 2005 bankruptcy code amendments resulted in stricter protections for individuals entitled to receive payments for support, alimony, equitable distribution, maintenance, etc. In other words, it is more difficult to eliminate such debt.
A chapter 7 debtor may not eliminate or discharge any debt that is due to a spouse, ex-spouse, or child, for support, alimony or maintenance. Maintenance includes any funds or property that is used for the support or sustenance of an individual.
In addition, a chapter 7 debtor may not eliminate or discharge equitable distribution, under certain situations. Equitable Distribution is typically the acquired assets, such as money and property, or a liability, such as marital debt, incurred during the marriage. Typically, bank accounts, real estate, and autos that were acquired during the marriage, which is distributed at divorce is deemed equitable distribution. Also, joint or personal debt acquired during the marriage, that is ordered to be paid by a spouse, as part of a divorce, is deemed equitable distribution.
A debtor’s Equitable distribution debt may not be discharged or eliminated in a chapter 7, if the debt is due to a spouse, former spouse, or child of the debtor and incurred by the debtor in the course of a divorce or separation, or in connection with a separation agreement, divorce decree, or other order of a court.
Typically, the issue in a chapter 7, is whether the debt is actually support, maintenance, or equitable distribution.
A chapter 13 debtor must pay, and may not eliminate, a spouses obligation to pay any support, alimony, or maintenance. Any support, alimony or maintenance arrears,due at the time of the filing, must be paid through the chapter 13 plan payment, in additional to payment of all future monthly payments for such debt. If the debtor is not current with all such payments, he will not obtain a chapter 13 discharge. At the end of the plan, the debtor must file a document that indicates all post filing payments were paid in full.
If the debtor is unable to pay all arrears through the bankruptcy plan, in addition to all post filing monthly payments, at any time during the case, the debtor will not be able to proceed with the chapter 13 case. This means that if the debtor has insufficient funds to pay all support arrears, through a 60 month bankruptcy plan, in addition to making the monthly support payments, the debtor will not be permitted to proceed with the case, no matter the reason for the filing.
The main difference between a chapter 7 and 13, regarding marital debt, is that a chapter 13 debtor is permitted to eliminate and discharge equitable distribution, no matter when and how the debt was incurred, with very limited exceptions. This means that any debt that is deemed equitable distribution may be eliminated, if the debtor does not have the ability to pay such debt, in a chapter 13.
Robert Manchel is a bankruptcy attorney in NJ., who is available to answer your questions at 866 503-5655