Before deciding that you have to sell your home to pay off your ex-spouse, discover your legal options. You may be in for a pleasant surprise.
The Need to Pay off Your Ex-Spouse
Divorce is so often so traumatic. All kinds of emotions can cloud your judgment at the time, and can cloud your memory afterwards. This is true even in a comparatively friendly divorce, and that much more so in a contentious one. So it’s no surprise that after the divorce is over you’re not really clear what legal obligations you have arising from the divorce and what you can do about them.
So, for example, you may believe you have no legal or practical choice but to sell your home now in order to take care of your divorce obligations. But that may well not be true. You may be able to sell later when it’s better for you. Or you may not need to sell at all. You may need to pay much less to your ex-spouse than you had thought.
The issues here all the more confusing because the interplay between divorce law and bankruptcy law can get complicated. This leads to big misconceptions. We’ll try to clear up some of the major ones here.
Divorce Debts that Can Be Discharged
It’s true that obligations arising from a divorce can’t be written off in bankruptcy (can’t be “discharged”)—but that’s only true IF you file a Chapter 7 “straight bankruptcy.” Because some divorce debts can be discharged in a Chapter 13 “adjustment of debts.” It’s true that child and spousal SUPPORT obligations can’t be written off in either a Chapter 7 case or a Chapter 13 “adjustment of debts.” But NON-SUPPORT obligations from a divorce CAN be discharged under Chapter 13.
So if you are selling your home at least partly to pay off some non-support obligations, a Chapter 13 case may be able to save you a lot of money. And it may make it possible for you to not sell your home, or to sell it when you want to.
What are non-support obligations that can be discharged in Chapter 13? They include just about all financial obligations laid out in your divorce decree or dissolution judgment that are not about support. They are sometimes called “property settlement” obligations because they’re often related to the splitting of marital assets or marital debts. A common non-support debt is an obligation to pay your ex-spouse a certain sum of money to make up for you getting more of the marital assets, for example if you get the higher value vehicle. Another non-support obligation is if you are ordered to pay certain creditor debts, whether or not you were legally on the hook for them originally.
Being able to discharge those divorce obligations through a Chapter 13 case may save you thousands of dollars and can affect your decision about whether and when to sell your home.
Divorce Debts that Can Be Delayed
If you are behind on child or spousal support, your ex-spouse and the local support enforcement agencies have an array of very aggressive collection tactics they can use against you, your income, and your assets, especially your home.
Although neither Chapter 7 nor 13 can discharge support obligations, they can still help.
A Chapter 7 case can discharge all or most of your other debts so that you can better afford your support payments. So if you’re not yet behind on them, you can avoid falling behind. Or if you are behind, you’d better be able to catch up.
If you are behind on support obligations and discharging your other debts won’t help enough, a Chapter 13 case can buy you more time to catch up on unpaid child and spousal support—as much as 3 to 5 years. During this time as long as you comply with some conditions (like keeping current on any ongoing support payments) your ex-spouse and support enforcement cannot take any collection action against you on the previously unpaid payments. That means they can’t garnish your wages, and must stop if they’ve already been doing so—as to the unpaid amount owed. They also can’t suspend your driver’s license or your professional or occupational licenses, as they often otherwise could.
So the ability of bankruptcy to buy you time with nondischargeable debts can be extremely valuable.
Divorce Liens that Can Be Prevented
The protections of bankruptcy can sometimes stop an ex-spouse from putting a lien on your home. The “automatic stay”—the federal law preventing creditor collection of debts and the imposition of liens as of the moment your bankruptcy case is filed—applies selectively to divorce debts.
Candidly, if your spouse was well-represented by his or her attorney in the divorce, depending on your state’s laws there could already be a lien on your home for the obligations arising out of your divorce. Indeed your ex-spouse may even still be on the title to your home. In either case these can put some limits on what bankruptcy can accomplish with these obligations.
But some divorce debts may not be secured by a lien against your home, so stopping such debts from turning into liens could be highly advantageous to you. And if your ex-spouse or his or her attorney was not thorough and failed to put a lien on the home, you should take advantage of that and stop them from doing so now.
Stopping the imposition of such a lien through bankruptcy may get more money coming to you if you do sell the home, or may avoid you needing to sell if you don’t really want to.
Divorce Liens that Can Be Delayed and Released
If you have a lien against your home because of unpaid child or spousal support, your ex-spouse and support enforcement agency won’t be able to enforce that lien by foreclosing on your home if you file and comply with a Chapter 13 payment plan as described above. After you catch up on your support payments the lien related to those payments will be released.
If you have a lien against your home because of non-support obligations, after discharging those obligations at the completion of a Chapter 13 case the lien will usually be released.
Bankruptcy can have a huge impact on what you have to pay and what you do not have to pay among the obligations in your divorce decree. It can also delay when certain of those obligations have to be paid, and protect you and your home in the meantime. Bankruptcy can of course also mean not having to pay some or all of your other debts, including debts related to your home.
Given all this, it only makes sense to understand how the concepts discussed in this blog post apply to you and to your home. It only makes sense to talk with a bankruptcy attorney about how to best meet your financial goals through selling your home now, later, or not at all.