I’ve been getting a lot of calls lately from both prospective clients and other lawyers with questions about how divorce related debt is handled in a Bankruptcy.
Support debt — child support, alimony, anything that is intended in the actual nature of support, regardless of what it is called, is yours for life. No Bankruptcy court can help you.
Non-support debt, i.e., the credit cards, the medical bills, your own divorce attorneys fees, possibly (but not necessarily) your ex-spouse’s divorce attorneys fees, anything other than support that you are ordered to pay in a divorce decree — this is different. If you file a Chapter 7 Bankruptcy, you are stuck with this. If you file a Chapter 13 — not so fast.
Typical scenario, prospective client calls following a nasty divorce. Decree orders this person to pay tons of credit card debt, and he owes his lawyer a fortune. (For purposes of this scenario it makes no difference to me how much the other spouse was ordered to pay, how much the other spouse makes, how much the other spouse has or has not suffered. For one thing the other spouse is not my client. For another thing, I’m just not that impressed by tales of other people’s poor judgment in things like choosing spouses.)
Here is what I tell the prospective client. You can file a Chapter 13 Bankruptcy. You will pay me several thousands in attorneys fees. You will pay the Trustee a not inconsiderable amount to administer your case. You will pay your mortgage, car, any recent taxes and any support debt that you owe over a period of five years. You will pay some additional amount, probably a small amount and almost certainly a lot less than all, of the rest of your debt — what you were ordered to pay in the divorce decree and whatever else you’ve got lying around. I can’t predict how much of that you will have to pay, but it is generally a lot less than all. Oh, and it will be paid without interest. At the end of the five years, you will get a discharge. Your ex-spouse will not. Any creditors to whom your ex-spouse is also liable will then be able to try to collect money from the ex-spouse. Not only can they try to get the remainder of the principle balance, but the interest you didn’t have to pay during your Bankruptcy.
In other words, you two fought for years over this debt. You paid attorneys thousands of dollars. You are going to pay me thousands more — and you will both still get the bill.
Now, wouldn’t it just have been better to have both filed for Bankruptcy before the Decree? Not had all that debt to argue about and then agreed to pay the money it would have taken to fund a Chapter 13 plan and added it to your kids’ college funds?