Divorce Court Can’t Decide What Obligations Survive Bankruptcy

Divorce Court Can’t Decide What Obligations Survive Bankruptcy
 

 

A Federal Bankruptcy Court recently ruled Georgia courts lacked jurisdiction to decide the effect of bankruptcy on a divorce.  In the case of In re Norton, 2017 BL 73251, Bankr. N.D. Ga., CASE NUMBER 16-10323-WHD (March 8, 2017), the parties’ divorce became final.  However, less than two weeks after the divorce was finalized, Harry Norton filed for Chapter 13 bankruptcy, which allows individuals receiving regular income to obtain debt relief while retaining their property. 

In order to file for Chapter 13 bankruptcy, a debtor must propose a three to five year plan that details how he intends to pay all of his debts.  After the payments are made, the remaining debt will be discharged, or erased.  But certain kinds of debts traditionally cannot be discharged by bankruptcy, such as support obligations arising from divorce.   

In the Norton’s case, their divorce decree included provisions stating that Harry would pay Karen $1,300 a month for child support and $53,000 as part of their property division agreement.  The decree also explicitly stated that the obligation could not be discharged by bankruptcy.  As a result, Karen sued Harry in bankruptcy court for a declaration that the $53,000 obligation wouldn’t be discharged by Harry’s bankruptcy.

The bankruptcy court then rejected the divorce court’s decree stating the obligation would not be dischargeable because it lacked the authority to enter such an order. The bankruptcy court also found the property division award was not a support obligation under the bankruptcy code, and determined the debt was dischargeable.  This opinion makes clear a state court’s judgment or decree will not control which obligations are or are not subject to bankruptcy relief.

More about Divorce and Bankruptcy

Generally, a court ordered support obligation is not eligible for discharge in bankruptcy cases.  However, a property settlement may be discharged once a debtor completes all payments in the repayment plan approved in a Chapter 13 bankruptcy. The recent ruling did not change this; it only confirmed which courts had jurisdictions to decide which matters.  Most divorce settlements also routinely specify whether something is intended to be support or a property settlement.  Bankruptcy courts also do not have the authority to decide whether support is or is not needed; those determinations still remain under the jurisdiction of family law courts. 

Gwinnett County and Duluth Divorce Attorney

Whether your divorce is a conflict-ridden one that involves child custody disagreements, dissolution of business, or asset division, divorce attorney David Ward has the experience to help you through even the most complex issues.  Gwinnett County divorce attorney has been helping people with their family law issues for over a decade. If you are contemplating or facing divorce, contact the Ward Law Firm today at 770-383-1973.
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