Navigating Family Court Obligations in Bankruptcy: What South Floridians Need to Know

Navigating the discharge of family court obligations in bankruptcy can be complex due to the interplay between the U.S. Bankruptcy Code and state laws. This article provides a detailed look at the relevant sections of the Bankruptcy Code and explains how courts determine whether these obligations are dischargeable. Although bankruptcy law governs the dischargeability of debts, the absence of federal domestic relations law means that state law and court decisions play a crucial role. Interestingly, both state and bankruptcy courts can determine the dischargeability of domestic relations obligations, though they must apply bankruptcy law in their analysis.

Bankruptcy Code Overview

When it comes to matrimonial debt, two primary sections of the Bankruptcy Code are key:

11 U.S.C. §523(a)(5): Excludes from discharge debts arising from Domestic Support Obligations (DSOs).

11 U.S.C. §523(a)(15): Excludes from discharge non-DSO claims, including obligations related to equitable distribution owed to a spouse, former spouse, or child.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) significantly modified these sections to reduce litigation over family issues in bankruptcy court. However, unintended consequences mean that courts must often review whether an obligation is a DSO under §523(a)(5) or falls under §523(a)(15) on a case-by-case basis. This applies to various agreements, including paternity settlements that address child support and time-sharing.

Domestic Support Obligation (DSO) — 11 U.S.C. §523(a)(5)

A DSO is defined by four components under 11 U.S.C. §101(14A):

The debt is owed to or recoverable by a spouse, former spouse, child, or a government unit.

It is in the nature of alimony, maintenance, or support. It was established before, during, or after bankruptcy through various agreements or court orders.

It has not been assigned to a nongovernmental entity unless for debt collection purposes by specified relatives.

In Chapters 7, 11, and 13, debts meeting these criteria are nondischargeable. If any element is missing, the debt may not qualify as a DSO, as seen in cases where obligations to third parties were not considered DSOs because the debt was not “owed to or recoverable by” the spouse or child.

Non-DSO Obligations — 11 U.S.C. §523(a)(15)

This section addresses non-DSO obligations, such as equitable distribution and property settlement claims not covered under §523(a)(5). Both state and bankruptcy courts can determine the dischargeability of these debts under bankruptcy law. While straightforward, the interpretation of these debts can vary, leading to different outcomes in similar cases.

Different Discharges and Results

Chapter 13 has two types of discharges: the full payment discharge under §1328(a) and the hardship discharge under §1328(b). The latter, requested when payments are not fully made, does not discharge domestic relations debts under §523(a)(15).

Unique Interaction of 11 U.S.C. §523(a)(15) and Chapter 13 Discharge

A domestic relations obligation fitting §523(a)(15) is generally dischargeable in Chapter 13, except under a hardship discharge. Non-debtor spouses can object to Chapter 13 plans, potentially preventing the debtor from getting a discharge if the plan is not approved.

The Attorney’s Role

Attorneys should identify the type of domestic obligation owed. DSOs are nondischargeable in Chapters 7, 11, and 13, while non-DSO obligations are nondischargeable in Chapter 7 but usually dischargeable in Chapter 13. Timing of bankruptcy filings in relation to family court cases is crucial, and careful review of court orders and agreements is necessary to determine whether bankruptcy is advisable and which chapter to file under.

Court’s Application of Law

The determination of whether a debt is a DSO depends on the intent of the parties, as outlined in various court cases such as Cummings v. Cummings and In re Benson. Courts consider factors such as the language of agreements, financial positions, and how obligations are treated for tax purposes.

Preparing for Bankruptcy

Spouses anticipating bankruptcy filings should ensure that obligations are described as DSOs in agreements to make them nondischargeable. Language in court orders should reflect the intent to provide support to ensure obligations are recognized as DSOs.

Attorneys’ Fees and Adversary Litigation

Litigation to determine dischargeability can be costly, with attorneys’ fees potentially added to the domestic relations debt. In Florida, fee awards can be based on contract or statute, with consideration of need and ability to pay.

Conclusion

Dischargeability actions in bankruptcy or state court are costly and uncertain, requiring thorough due diligence. Understanding the definitions in 11 U.S.C. §§523(a)(5) and (a)(15) and applying them to state court orders or agreements is essential for determining the advisability of filing for bankruptcy.