You can’t write off child and spousal support. But the bankruptcy court may determine it’s not really “in the nature of” support.
Our last blog post was about the conditions under which bankruptcy can discharge—write off—all income tax debts that meet certain conditions. Those conditions are mostly met by the passage of time. In contrast, unpaid child and spousal support is simply not discharged through bankruptcy. Not now. Not ever.
Support is Not Discharged, IF It’s Really Support
There IS one possibility, although admittedly this doesn’t often come into play. The Section of the Bankruptcy Code that defines support refers to a debt “in the nature of” child and spousal support. (See Section 101(14A).)
This “in the nature of” language means that an obligation could be called support in a divorce decree or court order, and yet NOT actually be “in the nature of” support. The bankruptcy court is not bound by what your divorce court labeled as support. The bankruptcy court looks beyond the language used in your separation or divorce documents to the kind of debt it actually is under the specific facts of your divorce.
Practically speaking, if an obligation was labeled as support by your divorce court most of the time it will indeed be “in the nature of” support. But not always, so it’s worth looking deeper.
Debts Labeled “Support” That Might Not Be for Bankruptcy Purposes
So what kind of debt is called support but is not really “in the nature” of support? It would be a “property settlement” obligations disguised as spousal or child support.
A property settlement obligation in divorce is one that resolves the division of a marital asset or debt. You may owe your ex-spouse a certain amount of money to make up for receiving more than your share of marital assets. Or you may owe to compensate him or her by taking on a marital debt.
If a divorce decree calls an obligation child or spousal support when it is not really “in the nature of support” but rather is a property settlement obligation, then it may be treated more favorably in your bankruptcy case.
An Example of “Support” that Isn’t “In the Nature of Support”
Imagine a personal loan provided to the two spouses during their marriage by one of the spouse’s parents. In the subsequent divorce, the divorce decree could obligate one of the ex- spouses to repay that loan by paying making payments of “spousal support” until that loan was paid off. In that obligated spouse’s subsequent bankruptcy case, that obligation for so-called “spousal support” would likely be seen by the bankruptcy court as one not “in the nature of” support.
But This Also Cuts in the Other Direction
An obligation that IS “in the nature of” child or spousal support can be called something else in the separation or divorce documents, but could still be treated as a support obligation and not discharged in bankruptcy.
For example, one spouse may be obligated to maintain health insurance on behalf of a child, without the divorce court labeling that obligation as child support. The bankruptcy could determine that is “in the nature of support.”
What Difference Does This Make?
Under Chapter 7 “straight bankruptcy” neither support obligations nor property settlement obligations can be discharged. But under Chapter 13 “adjustment of debts” case filed with your Louisville bankruptcy lawyer property settlement obligations from a divorce (or separation) CAN be discharged.
So if you have obligations called “support” but which are not “in the nature of support,” a Chapter 13 is worth looking into.
Chapter 13 does not discharge debts after only about 3-4 months of filing the case as happens most of the time under Chapter 7. Instead it happens after a 3 or more years in a court-approved partial payment plan. We’ll explain more about the discharge of debts under Chapter 13 in an upcoming blog post.