California residents who are concerned about how bankruptcy may affect their divorce settlement may be interested to learn of a March bankruptcy court ruling. According to a federal bankruptcy judge, a divorce court does not have the authority to determine which obligations can survive bankruptcy.
In the case, an ex-husband filed for Chapter 13 bankruptcy shortly after his divorce became final. Chapter 13 bankruptcy permits debtors who are receiving regular income to obtain debt relief and retain their property. A debtor is required to submit a three-to-five year payment plan that details how future income will be applied to the obligations. Once all of the payments are made, most of the remaining unsecured debts will be discharged. However, only certain types of debts can be discharged by this type of bankruptcy. While support obligations related to a divorce cannot be discharged, the property settlements that are separate from support obligations can.
According to the divorce decree, the ex-husband was required to pay $1,300 each month for child support and a total of $53,000 in property division payments. The decree also stated that the property division payments could not be discharged in bankruptcy.
The ex-wife sued in the bankruptcy case so that the $53,000 would not be discharged. The bankruptcy court ruled that the Georgia's court decree asserting that the property division payments would not be discharged was a violation of public policy and that the state court had no jurisdiction to make the ruling.
An attorney who practices family law may work to protect a client's interests when negotiating property division terms during a divorce. The attorney may consider a client's financial status and goals when advising which assets or marital property may be more beneficial to retain.