Cincinnati Family Law & Divorce Blog: How Does Bankruptcy Impact Divorce?
It is not uncommon for the fields of bankruptcy law and divorce law to intersect. One way this can happen is if one or both parties file for bankruptcy while a divorce action is pending. Another way is if one party seeks to be relieved (“discharged”) from an obligation that arose out of a divorce or dissolution by filing for bankruptcy. This blog post will attempt to give a general overview of what happens in these specific situations.
If a divorce action is pending and one or both parties file for bankruptcy, a court can still carry on aspects of the divorce case. While the law provides an automatic suspension (“stay”) of judicial proceedings, there are several exceptions. A court can still hear cases to establish paternity, establish or modify spousal support or child support, hear cases concerning child custody or visitation issues, or hold hearings related to domestic violence (11 U.S. Code § 362(b)(2)). However, a divorce court cannot divide marital assets and property while a bankruptcy case is pending (11 U.S. Code § 362(b)(2)(a)(iv)); See Brooks-Lee v. Lee, 2005-Ohio-2288).
If there is an order for the payment of child or spousal support arising out of a divorce or dissolution, and a party later files for discharge, that party cannot discharge his or her obligation. This type of payment is considered a “domestic support obligation,” which is defined as any debt incurred before or after a bankruptcy filing that is owed to or recoverable by a spouse, former spouse, child or governmental unit; in the nature of alimony, maintenance or support; and established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination (11 U.S. Code § 101(14A)). In both Chapter 7 (liquidation bankruptcy) and Chapter 13 bankruptcies (reorganization bankruptcy), domestic support obligations are non-dischargeable (11 U.S. Code § 523(a)(5); 11 U.S. Code § 1328).
Can other obligations, such as an order for payment of debt or a payment of property division to a former spouse be discharged? This is where the distinction between Chapter 7 and Chapter 13 bankruptcies is important. In a Chapter 13 bankruptcy, a debtor may be able to get relief from an obligation to a former spouse that is not in the nature of support. In a Chapter 7 bankruptcy however, these obligations are non-dischargeable (11 U.S. Code §523(a)(15)).