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Federal bankruptcy judge rules on Chapter 13 divorce debt

When individuals in Texas and around the country file a Chapter 13 bankruptcy, there are certain debts that cannot be included. Debts that are not discharged include certain taxes, most student loans and spousal and child support obligations, but debts associated with the property division provisions of a divorce settlement can be included in a Chapter 13 filing. This rule was recently put to the test in a case involving a Georgia couple, and a federal bankruptcy judge ruled on March 8 that a state court had made a mistake when it excluded a property division debt.

The case involved a Chapter 13 petitioner who filed for bankruptcy less than two weeks after his divorce became final. According to court documents, the property division terms of the couple's divorce settlement state that the $53,000 the man is required to pay his ex-wife cannot be discharged in a bankruptcy. The man's former wife took action when she learned about the bankruptcy filing, and a Superior Court judge subsequently ruled that the lump-sum property division payment and the $1,300 per month in child support the man is required to pay should be excluded from the bankruptcy.

The federal bankruptcy judge reviewing the case wrote in his opinion that the public policy argument the decision was based on lacked merit, and he also pointed out that the court involved did not have the jurisdiction to make the ruling in the first place. He went on to say that the provisions of a divorce settlement are not able to accomplish what a state court judgement or decree cannot.

Experienced family law attorneys will likely be familiar with the provisions of the bankruptcy code as it relates to divorce settlement obligations, and they may advise their clients to be cautious in situations where a Chapter 13 filing could leave them vulnerable. In cases like these, attorneys may make concessions during property division talks in return for higher spousal support payments that would be excluded from a Chapter 13 petition. Source: U.S. Courts, Chapter 13 - Bankruptcy Basics

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