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Are Property Settlement Agreements Dischargeable in Bankruptcy?

Property settlements Agreements in Bankruptcy If you have been through a divorce and there was some assets involved then chances are that you entered into a property settlement agreement. As part of your agreement you may have had to provide a payment to your ex-husband or ex-wife over the course of time or in a lump sump payment after the sale of an asset. What happens if you end up in debt over your head and do not have the money or assets to cover the settlement agreement. Can you file for bankruptcy and get rid of he property settlement agreement.

The first think to look at if whether this is truly a property settlement agreement or whether it is structured as alimony or support payments owed to your ex-spouse. If the agreement is in the form of alimony or support payments then you will not be able to discharge this debt in bankruptcy. Neither Chapter 7 or Chapter 13 will allow you to eliminate alimony or child support payments owed. Whether an agreement is considered a support obligation or a property settlement will be based on a number of factors such as whether it is being paid over time or as a lump sum, does it terminate after a certain even and whether there was a need for support at the time of the divorce.

If the debt is a property settlement agreement then you may be able to discharge it in a Chapter 13 bankruptcy. Chapter 13 bankruptcy allows you to get rid of the property settlement agreement. Of course your ex-husband or ex-wife can try to fight it by trying to establish that the debt owed is actually intended as a support obligation or alimony rather than simply a division of assets.

If you file for Chapter 7 bankruptcy the property settlement agreement will not be discharged as part of your bankruptcy. Under the new laws property settlement agreements are for the most part non-dischargeable in Chapter 7 bankruptcy.

Comments

Laura,

I am assuming that you daughter filed Chapter 7 bankruptcy. If she was assigned the debt and agreed to hold him harmless for the debt, then the bankruptcy did not remove her liability for this. She could have potentially filed a Chapter 13 bankruptcy to eliminate this liability. Unfortunately it sounds like the bankruptcy discharge did not provide the relief needed. You can read more about getting rid of a divorce debt from a hold harmless agreement here: <a href="http://www.socaladvocates.com/blog/divorce-decree-debt-in-bankruptcy/" rel="nofollow">http://www.socaladvocates.com/blog/divorce-decree-debt-in-bankruptcy/</a>
My daughter and son in law divorced about 21/2 yrs. ago (in California). In the settlement, she took on about $8500 of credit card debt that was in his name. A year ago, she filed bankruptcy, with this debt included. Her lawyer misadvised her that the debt would "go away" for both parties (her and her ex). After having the debt discharged in court (August 2012), her ex started to be contacted by the credit card companies for payment. She contacted her attorney who will not respond. Now, her ex-husband has sued her to make good on the original debt. The local courts look like they are going to uphold the settlement and make her pay the debt to him directly which will result in wage garnishment, etc. Does she not have any recourse as the debt was discharged and her lawyer did not advise her correctly regarding the situation? She goes back to court next week; if anybody has any good ideas, please write. (He is not willing to file bankruptcy on same debt). Thank you very much.
As there is always unsettled areas of the law and new case law, I indicated it as for the most part, in case there is any future cases that indicate otherwise. As it stands right now property settlement agreements are not dischargeable in a Chapter 7 bankruptcy.
If you file for Chapter 7 bankruptcy the property settlement agreement will not be discharged as part of your bankruptcy. Under the new laws property settlement agreements are for the most part non-dischargeable in Chapter 7 bankruptcy.

I copied and pasted the last paragraph from your explanation of discharging property settlement debts in chapter 7. You say " for the most part " property settlements are non- dischargeable in chapter 7.

1.Under what circumstances are property settlements dischargeable in chapter 7 ?

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