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Not all debt is created equal

While most unsecured debts, such as credit card debts, are dischargeable in bankruptcy, there are exceptions to the types of debts that can be discharged through the bankruptcy process. In Chapter 7 bankruptcy, for example, debtors typically cannot discharge government-funded student loans, certain tax debts, federal liens, debts related to personal injury cases and fines or penalties for violating the law. Another common exception is alimony. Tennessee readers may find it interesting to learn that this principle can apply to the repayment of alimony overpayments, as well.

In a recent Chapter 7 case, a debtor was denied the ability to discharge more than $50,000 that she owed her ex-husband for overpayment of alimony. The couple divorced in 2005 and the husband was ordered to pay $2,500 a month in spousal support. In 2009, the ex-husband asked the court to terminate his support obligation because the woman had been living with another man for over two years. The court found in his favor and ordered the woman to repay over $40,000 in alimony, plus attorney's fees.

A year later, the woman filed for Chapter 7 bankruptcy. As part of her bankruptcy, she wanted to discharge the judgment owed to her ex-husband. The ex-husband objected and initiated an adversary proceeding. The court held that the claim was non-dischargeable, as the debt qualified as a domestic support obligation and the debtor appealed. Affirming the lower court's holding, the Court of Appeals for the Tenth Circuit recently reasoned that since the debt was incurred in relation to a divorce decree, it did not qualify for discharge under Section 523 of the bankruptcy code.

Understanding what debt is and is not dischargeable in bankruptcy is important. The type of debt a person is seeking to discharge, as well as his or her long-term financial plans and current financial condition will all help shape the proceedings. Nevertheless, while not all debt is created equal, bankruptcy can still be an important tool in overcoming financial challenges and getting a fresh financial start.

Source: Bloomberg Law, "Debt owed To Ex-Husband For Overpayment of Spousal Support is Nondischargeable," Diane Davis, Dec. 13, 2013

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

Toll Free: 888-376-0282
Phone: 423-933-1606
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