BANKRUPTCY DISCHARGE OF DEBTS ARISING FROM MICHIGAN DIVORCE JUDGMENTS
A Michigan divorce judgment is an order of a Michigan state Circuit Court judge determining the disposition of marital assets, support obligations, and the responsibility for the payment of martial debts (among other things) upon the termination of a legal marriage.
A bankruptcy “discharge” is a permanent injunction issued by the Federal Bankruptcy Court upon the successful completion of a Chapter 7 or Chapter 13 bankruptcy process. It relieves the debtor who filed the bankruptcy of any legal obligation to repay a debt that was owed prior to the filing of the bankruptcy case.
Generally speaking, the bankruptcy discharge “preempts,” or supersedes, any order of a Michigan state court regarding the disposition of debt as Federal law trumps state law in this respect. This is, for example, why a lawsuit filed in a Michigan district court to collect a credit card debt must cease upon the filing of a bankruptcy proceeding.
However, there are limits to the Bankruptcy Code’s preemption of state law. There are points at which a Michigan state court’s order remains viable after a bankruptcy proceeding is commenced.
A key limitation is the language of a Michigan judgment of divorce.
THE BANKRUPTCY CODE & MICHIGAN DIVORCE JUDGMENTS
When Congress drafted the US Bankruptcy Code and amended it in 2005, a key concern was the welfare of children and others for whom support payments are awarded in state court divorce judgments and other such support orders.
Section 523 of the Bankruptcy Code is a listing of various types of debts not eligible for a discharge in bankruptcy. Two of them deal with the sorts of debts typically arising from divorce judgments.
Section 523(a)(5) makes non-dischargeable domestic support obligations.
Section 523(a)(15) makes non-dischargeable obligations to a spouse, former spouse, or child of the debtor arising from a divorce judgment other than domestic support obligations. In other words, property settlement obligations and obligations arising from the disposition of “marital debt.” (Marital debt are joint debts the obligation of payment for which a Michigan judge “awards” to one spouse or another in a divorce.)
CHAPTER 7 VS. CHAPTER 13 AND DIVORCE JUDGMENT OBLIGATIONS
In a Chapter 7 bankruptcy, both 523(a)(5) and 523(a)(15) will operate to prevent the discharge, therefore, of nearly any obligation arising from a court-ordered divorce judgment.
In a Chapter 13 bankruptcy, 523(a)(15) will not prevent the discharge of non-support obligations arising from a judgment of divorce.
Why the difference?
Section 1328(a) of The Bankruptcy Code specifies which debts are dischargeable in a Chapter 13 bankruptcy proceeding and which are not. This Code Section states that “domestic support” obligations and debts of the kind described in Section 523(a)(5) are not dischargeable—but it does not say anything about property settlement obligations or 523(a)(15).
Therefore, if your divorce judgment requires that you pay $500.00 per month in spousal support and also to pay the balance of a joint debt on a credit card, both obligations would be non-dischargeable in a Chapter 7 but only the spousal support obligation would be non-dischargeable in a Chapter 13.
BANKRUPTCY & MICHIGAN DIVORCE JUDGMENTS: THE BOTTOM LINE
The bottom line is that you need to retain an experienced attorney to represent you are considering filing for bankruptcy while in the process of a divorce or have been divorced and have a court-ordered judgment of divorce in hand.
Divorce judgments are often poorly and imprecisely drafted, and it is often not so cut-and-dry whether an obligation arising from a divorce judgment is or is not a support-related obligation.
Contact The Law Offices of Walter Metzen & Associates now to schedule a no-cost, no-obligation initial consultation.