Can bankruptcy erase a divorce property settlement debt?

What is a property settlement debt?

In bankruptcy law it is a debt to a spouse, former spouse or child that is not a support obligation and that you took on in the course of a divorce or separation, or under a separation agreement, a divorce decree or another court order.1

A payment ordered to even out the division of the couple's property is the plain example. Child support and alimony belong to a different category, called domestic support obligations, with stricter rules.1 5

Is your debt support or a property settlement?

This is the question everything else depends on. A domestic support obligation is a debt in the nature of alimony, maintenance or support, whether or not the document that created it uses those words. A support obligation can even be set out in a property settlement agreement.5

So the label in your decree does not decide it. If the purpose of a payment is unclear, a bankruptcy court may have to decide what it really is, and that is a point to take to a lawyer before choosing a chapter.5

What happens to a property settlement debt in Chapter 7?

It survives. A Chapter 7 discharge does not cover a debt of this kind, so you still owe it when the case ends.1

Most exceptions to discharge apply automatically. Your former spouse does not have to ask the bankruptcy court to rule on the debt for it to survive, which is different from debts affected by fraud, where the creditor must ask.6

While the case is open, the automatic stay stops most collection actions, and that includes collection of a property settlement debt. Support is treated differently: the stay does not stop cases to set or change support orders, or collection of support from property that is not part of the bankruptcy estate.7 8

What happens to it in Chapter 13?

Here the two kinds of divorce debt part ways. The federal courts describe the Chapter 13 discharge as somewhat broader than the Chapter 7 discharge, and list debts arising from property settlements in divorce or separation proceedings among the debts that can be discharged in Chapter 13 but not in Chapter 7.2

• During the plan, which usually lasts three to five years, an unsecured property settlement debt is paid alongside your other unsecured debts. A plan does not have to pay unsecured claims in full.2
• The broader discharge comes only after you complete all payments under the plan.3
• Support is treated differently throughout: the discharge at the end of the plan does not cover domestic support obligations.3
• The federal courts call the law on the scope of the Chapter 13 discharge complex and advise consulting a lawyer about it before filing.2

What if your former spouse is the one who files?

The same rules apply in reverse. If your former spouse files Chapter 7, what they owe you under the property settlement survives their discharge. If they file Chapter 13 and complete the plan, that debt can be discharged, and it is paid through the plan alongside their other unsecured debts.1 2 3

Support owed to you is protected in both chapters. It is not discharged, and the automatic stay does not stop proceedings to set or change a support order.3 4 8

Joint debts are where people get caught. If the decree made your former spouse responsible for a joint credit card or loan, their discharge releases only them. You still owe that creditor, and it can come to you for payment.9

What would change the answer?

A few facts can move a debt from one column of the table to the other.

• Whether the debt is really support. If a court treats it as being in the nature of support, it is not discharged in either chapter.5 3 4
• Whether you finish the plan. A hardship discharge, which a court may grant when a debtor cannot complete the plan for reasons beyond their control, does not cover any debt that could not be discharged in Chapter 7. A property settlement debt would survive it.2 3 1
• Who else owes the debt. If your divorce left you responsible for a joint debt, your discharge releases you and not your former spouse, who stays liable to that creditor.9