While alimony and support obligations are not legally dischargeable, cash payments on debts securing property in a settlement agreement may be cancelled. There is no foolproof way to protect yourself but there are a couple of things you could do that may help you.
First, if at all possible, do not negotiate a property settlement agreement while in the middle of a divorce proceeding. This is both complicated and often dangerous to one or both spouses because of the “dischargeability” situation. To determine whether one or more debts could be declared as dischargeable, the court will normally consider the following information.
If you are to become the ex-spouse who is owed money, you should make every attempt to have the majority of funds classified as alimony or other support. Since these debts are non-dischargeable, you will be protecting your future cash payments as much as possible. The more items that carry debt that you include in your property settlement agreement, the higher the risk that your ex-spouse may convince the bankruptcy court that certain debts should become dischargeable.
The following are debts that cannot be discharged in any bankruptcy, including a divorce bankruptcy.
Items in a court-approved property settlement are presumed to be non-dischargeable in a bankruptcy. However, there is no hard rule about this subject and may be able to have one or more related debts discharged. To have a chance to overturn this convention, you must show that your inability to pay this debt and take care of yourself outweighs the harm that might befall your ex-spouse and/or any minor children who are involved in the divorce. For instance, if you agreed to make credit card payments on former joint accounts, and now you find you do not have the funds to pay your rent or purchase food, you can petition the court to allow you to include these debts in your bankruptcy filing. No real harm would come to your ex-spouse or children, but a discharge of these debts would benefit you greatly.
The most important thing you need to know: Child support is NOT dischargeable in any type of bankruptcy. The welfare of minor children is of primary importance throughout the state and federal court system . When you're considering bankruptcy, do not compute any child support payment reduction. Much like the regulations that apply to student loans, child support requirements always remain as mandated by family court. But you still can get some benefit from declaring bankruptcy. Although you cannot erase child support payments, if you file for Chapter 7 protection and most of your other debts are erased, your budget will include new extra cash, which will make it easier for you to make your scheduled support payments on time. Even choosing a Chapter 13 wage earner plan will lower your monthly payments to creditors, leaving you with more available cash to meet your support commitments.