Domestic Relations Obligations: Dischargeable or Not in Bankruptcy?

• Date: 01 September 2022
• Author: Karlan, Judge Sandy

Identifying family court obligations that may be discharged in bankruptcy is more nuanced than it would appear because it requires an analysis of the U.S. Bankruptcy Code sections and an analysis of relevant state laws. This article reviews the relevant Bankruptcy Code sections and discusses the process by which the bankruptcy court conducts its analysis. The determination of whether a family court obligation is dischargeable is pursuant to bankruptcy law. However, there is no federal domestic relations law, so the bankruptcy court will look to the state court law and the state court's ruling or the language of the parties' agreement in applying the Bankruptcy Code definitions. Interestingly, the state court has concurrent jurisdiction to make a determination as to whether a domestic relations obligation is dischargeable or not; however, the state court must apply bankruptcy law. The authors also provide a chart that covers many cases, both state and federal, that have applied this analysis, and which reflects how nuanced this process can be.

Definitional Analysis--Bankruptcy Code

There are two primary sections concerning matrimonial debt: 1) 11 U.S.C. [section]523(a)(5) (exempting from discharge debts arising from DSOs); and 2) 11 U.S.C. [section]523(a)(15) (exempting from discharge non-DSO claims, that is any obligation, including equitable distribution, owed to a spouse, former spouse, or child). Both sections were significantly modified by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and the changes were specifically designed to eliminate litigation over family issues in bankruptcy court. As one commentator opined, BAPCPA would result in "a reduction in the need for family support creditors to appear in bankruptcy court and a related reduction in the cost and uncertainty inherent in litigating family support issues in bankruptcy court." (1)

Despite congressional intentions, the law sometimes has unintended consequences. In this regard, the case-law surrounding the issue of whether a domestic relations obligation is a domestic support obligation (DSO) under [section]523(a)(5) or whether it is a debt described by [section]523(a)(15) is reviewed on a case-by-case basis. This analysis also applies to paternity settlement agreements, which generally only address child support and time sharing.

11 U.S.C. [section]523(a)(5)--Domestic Support Obligation

The term "DSO" is defined in 11 U.S.C. [section]101(14A) and excepted from discharge under 11 U.S.C. [section]523(a)(5). In a summary of the four components outlined in [section]101(14A), a DSO is for a debt that 1) is owed to or recoverable by a spouse, former spouse, or child, or government unit for a spouse, former spouse, or child; 2) is in the nature of alimony, maintenance, or support, whether or not the debt is expressly so designated; 3) has been established before, during, or after the filing of bankruptcy in a separation agreement, divorce decree, property settlement agreement, order of a court of record, or determined by applicable non-bankruptcy law or governmental unit; and 4) has not been assigned to a nongovernmental entity unless such assignment is by the spouse, child, child's parent, guardian, or responsible relative for the purpose of collecting the debt. (2) In Chapters 7, 11, and 13, any 11 U.S.C. [section]523(a)(5) debt is non-dischargeable, as long as it meets all four elements of the definition of a DSO. (3) However, if one of the above-referenced four elements is missing, the obligation will not qualify as a DSO--such as former spouse no longer being responsible to pay the attorneys' fees; (4) or former spouse having no responsibility for the evaluator's debt. (5) In the discharged circumstances, the debt was owed to a third person and the former spouse would not have any responsibility for the debt if it was not paid by the debtor and, therefore, the debt was not "owed to or recoverable by" the objecting creditor--former spouse.

11 U.S.C. [section]523 (a)(15)--Referred to as Non-DSO Obligations

The alternative domestic relations debt...