A divorce lawyer called me today with a question about the impact of bankruptcy on a debtor’s obligations under a divorce decree. The divorce lawyer represented a man who was the co-signer of a credit card along with his ex-wife. The divorce decree provided that the ex-wife would be responsible for payment of this credit card debt.
In December, 2006, the wife filed a Chapter 7 bankruptcy and included the credit card debt in her petition. She did not list the ex-husband as a creditor in the case and the ex-husband did not receive official notice of the filing. The husband’s divorce lawyer wanted to know what, if anything, could the ex-husband do to protect his interests.
I responded by noting that Bankruptcy Code Sections 523(a)(5) and (a)(15) apply here. 523(a)(5) makes debts in the nature of alimony and support non-dischargeable where as (a)(15) provides that debts to a former spouse not in the nature of alimony or support but incurred by the debtor in connection with a divorce decree are not dischargeable.
Therefore, in my view, the ex-husband is a creditor by virtue of financial liability that he would incur if the debtor fails to pay the credit card debt.
I further advised my attorney colleague that she should contact the debtor’s lawyer and inquire as to whether the debtor would consent to an Order holding the obligation to the ex-spouse as non-dischargeable in the Chapter 7. Arguably, 523(a)(15) and 727(b) make these debts non-dischargeable automatically, but I would feel safer with an Order from the bankruptcy judge formally holding that these debts are not discharged in bankruptcy.
I also ran this scenario by my colleague Shayna Steinfeld, a lawyer who practices in the area of bankruptcy and domestic relations law and she concurred with my analysis and added two additional points:
1) that this property division debt would be dischargeable in a Chapter 13 (pursuant to Section 1328(a)(2); and
2) that the automatic stay of Code Section 362 may not apply (per Section 362(b) if the credit card obligation was in the nature of alimony or support.
The bottom line – the debtor wife is not going to be able to stick her ex-husband with this credit card debt, although the ex-husband may need to protect his rights by filing an appropriate pleading in the bankruptcy court. The wording of the divorce decree here is also critical in determining how this credit card obligation will be treated.