Chapter 13’s “super discharge” means that you can write off a portion of any non-support debts included in your divorce decree.
What’s a “Discharge”?
When a debt is discharged, the creditor is legally forbidden to take any action “to collect, recover or offset any such debt.” See Section 524 (a)(2) of the Bankruptcy Code. The goal of most consumer bankruptcy cases is to discharge all debts, or as many debts as possible.
Chapter 7 vs. Chapter 13 Discharge
Under Chapter 7 “straight bankruptcy,” most debts are discharged. But there are exceptions. You may want to continue making payments on your vehicle loan in order to keep that vehicle, so you might voluntarily choose not to discharge that loan. Plus you’ve probably heard of some of the exceptions you don’t have any choice about: child and spousal support, most student loans, and recent income taxes, for example.
The kinds of debts that can’t be discharged in a Chapter 7 case are mostly the same kinds that can’t be discharged in a Chapter 13 “adjustment of debts” case, again the examples of child and spousal support, most student loans, and recent income taxes.
HOWEVER, there is one major kind of debt which can’t be discharged under Chapter 7 BUT which CAN be discharged under Chapter 13: non-support divorce debts. So if you owe a large amount of this kind of debt, you should seriously look into filing a Chapter 13 case instead of a Chapter 7 one. That way you may be able to pay little or even none of your non-support divorce debts, instead of having to pay them in full.
But What ARE Non-Support Divorce Debts?
They are usually obligations in your divorce decree related to the division of property and the division of debts between you and your ex-spouse.
As to the division of property, if in your divorce your ex-spouse received less assets than you did, your divorce decree may have required you to pay your ex-spouse a specific amount of money to make up for the difference.
As to the division of debts, your divorce decree may have required you to pay certain debts so that your ex-spouse would not have to do so. This created a new and separate obligation by you to your ex-spouse to pay those debts, over and beyond your initial obligation to the creditor(s).
In a Chapter 7 case, your obligation to pay your ex-spouse the money to make up for you getting more of the marital assets cannot be discharged—you would continue owing your ex-spouse that debt.
The divorce-created obligation to pay the designated debts would also not be discharged in a Chapter 7 case—you may be able to discharge your obligation to the initial creditor(s), but you would still be required to pay the debt(s) because of the requirement to do so in your divorce decree.
Discharged Only Under Chapter 13
BUT both of these obligations to your ex-spouse, and all other non-support divorce debts, WOULD be discharged in a Chapter 13 case. That’s part of the Chapter 13 “super discharge.”
That doesn’t mean that it would be just written off in a matter of a few months as in a Chapter 7 case. Rather in a Chapter 13 case it means that these non-support obligations would be treated like all your other “general unsecured” debts. They would all be put into one pool of debt, and then the extent to which that you would pay that pool of debt would be based on a number of factors, including:
- the amount of your other legally higher priority debts (such as back child or spousal support, recent income taxes and such), which must be paid in full before other debts are paid anything;
- the amount of the other “general unsecured” debts in that pool—the more other debts there are, the less your ex-spouse will receive;
- how much your plan must pay in administrative expenses: the Chapter 13 trustee fees and whatever attorney fees you did not pay before your case was filed—which must be paid ahead of the general unsecured creditors;
- whether your Chapter 13 plan lasts 3 years or 5—determined by your income when your case is filed); and
- how much you can afford to pay all your creditors per month, now and throughout the length of the case.
In some cases, the general unsecured debts—and thus your non-support divorce debts—are paid nothing (where such “0% plans” are allowed). In rare cases, the general unsecured debts are paid in full (usually when there is little or no higher priority debts and the general unsecured debts are relatively small). Most of the time your non-support debts in a Chapter 13 case are paid a relatively small portion of the total owed, “pennies on the dollar.”
Again, that means that you should definitely look into the Chapter 13 option if you have a significant amount owed in non-support divorce debts.