What Happens to Divorce Debts in Bankruptcy?

Debts in the nature of support of child or former spouse are not discharged in either chapter 7 or 13 bankruptcy.

What about property settlement debts?  If the divorce decree contains a hold harmless obligation that makes one spouse indemnify the other spouse, then the hold harmess oglibation is a separate debt to the spouse and is not dischargeable in chapter 7 bankruptcy 523(a)(5) or 523(a)(15).

The hold harmless obligations can be discharged in chapter 13 bankruptcy as long as the debt to the former spouse not a Domestic Support Obligation (DSO).  This is possible because property settlement debts under 523(a)(15) are not excepted from discharge in chapter 13 cases.  See Schuett v. Finkey, 2008 Bankr. Lexis 1555 (Bankr. D. Neb. May 21, 2008).

Walking Away from the House

Cathy Moran, my blogging colleague on the Mortgage Law Network, discusses whether you should prevent foreclosure and keep the house.  Walking away from the house is one solution for a homeowner who can’t afford to repay the mortgage loan balance and the house is worth at least as much as you owe.  A deficiency judgment, if one is taken in the foreclosure, can be discharged in bankruptcy.  Here is a pay or go calculator to help you assess whether you should walk away from your mortgage.

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