Under bankruptcy laws, most types of debts are discharged if a successful “chapter 7” bankruptcy is completed. There are certain types of debts, however, such as student loans that are generally non-dischargeable. With a consumer debt, there is certain leverage that a debtor or his attorney may have in a lawsuit as they can threaten to file for bankruptcy upon the completion of the matter of actually file for bankruptcy to wipe away most debts. Can such an action be taken in a divorce proceeding? The shot answer is “no.”
The Bankruptcy code generally considers “domestic support obligations” as non-dischargeable debts. However, it is possible that in certain filings, such as a “Chapter 13,” that you may be granted additional time to pay back alimony and/or child support due. It should be noted that even equitable distribution debts are considered “domestic support obligations,” meaning that the bankruptcy code gives a broad interpretation to “domestic support obligations.”
Another issue that has a less clear answer is whether or not legal fees agreed to or awarded as part of a New Jersey divorce are dischargeable, with some conflicting information and opinions on this matter generally revolving around the intent of the counsel fee order.
New Jersey bankruptcy attorneys can assist you or your divorce attorney in planning appropriate strategy regarding bankruptcy issues impacting a pending divorce. In some instances it may make sense to file jointly prior to the divorce and in others to file separately. This is sometimes complicated and requires a bankruptcy attorney to represent or at least consult on the appropriate course of action.
Although the economy is in a better state that it was around a decade ago during the “Great Recession,” debt remains an important consideration for those contemplating divorce. Alimony and child support obligations can feel overwhelming or conversely, you may wish to know that the support payments will continue even if bankruptcy is contemplated. The above brief overview is merely that, as like most instances in new jersey family law courts, there are fact-sensitive considerations to entertain.