Florida residents that may be considering bankruptcy may like to know that under Bankruptcy Code Section 523 (a) (15), debts incurred due to a separation agreement cannot be discharged when a person files for bankruptcy. For instance, in 2005, a court in Virginia ordered a divorcing husband to make spousal support payments to his ex-wife for ten years so long as either one was alive or until his ex-wife remarried. In 2009, the man argued to the court that his ex-wife had been living with a man in a marriage-like relationship for the past two years, which, under Virginia Code, should have been enough to terminate his spousal support obligations.
The court agreed with the man and ordered that the woman repay him $40,660 in overpaid spousal support, plus $10,000 for attorneys’ fees. In 2010, the woman filed for Chapter 7 bankruptcy and tried to discharge the debt owed to her ex-husband. However, the Bankruptcy Code states that debt cannot be discharged when it is owed in relation to any domestic support obligation, settlement agreement or divorce proceeding. These provisions reflect congressional preference of the rights of spouses to support and other payments.
The woman appealed her case, and the court held that the payment owed to the ex-husband did not qualify as a spousal support payment, since the payment was not ordered to him for his support. However, the payment did qualify as a payment made in connection with a settlement agreement; therefore, the woman still could not discharge her debt.
As this case shows, the process of bankruptcy can be complicated by outside factors and the stipulations included in Bankruptcy Code. However, consultation with an attorney who works in bankruptcy law may be beneficial for those considering debt relief under Chapter 7 or reorganization under Chapter 13.
Source: Bloomberg Law, “Debt owed to ex-husband for overpayment of spousal support is non dischargeable“, Diane Davis, December 13, 2013