Divorce filings and Bankruptcy filings often intersect.  In my years as an attorney practicing heavily in bankruptcy law, I have seen countless individuals in consultations where a divorce is an issue.  It is such a frequent occurence that I even list a “divorce decree” as part of the relevant documents in my standard retainer agreement as a final reminder to anyone retaining my services of the importance of informing me of any past divorce proceeding.  But how does a divorce have a bearing on someone’s potential bankruptcy filing?

If a potential client has had a divorce in their recent past, it may not be adviseable for them to file a Chapter 7 Bankruptcy.  A divorce prior to the filing of a bankruptcy may include what is known as a “hold harmless clause” in the separation agreement and/or divorce decree and such language has a dramatic effect upon one of the parties filing a bankrupcy.  In a recent Kentucky Supreme Court decision, Howard v. Howard, a debtor had filed Chapter 7 Bankruptcy and included an obligation that was part of their divorce decree as an obligation subject to a hold harmless agreement.  A charge to find the debtor in contempt of a state court order due to violating the divorce decree as it pertains to the joint debt was filed in the lower court and deemed appropriate, ruilng that the debtor was indeed in contempt.  The Supreme Court, on appeal, agreed that the debtor was in contempt of the court ordered divorce decree.

The ruling in Howard v. Howard goes even further in explaining that, in addition to holding the debtor in contempt of the divorce decree order, contrary to the arguments of the debtor’s attorney, the debts themselves were non-dischargeable under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) even though the debtor’s wife never objected to the bankruptcy filing.  This means that you will be held in contempt of court for filing a Chapter 7 Bankruptcy when your divorce contains a hold harmless agreement AND that you won’t even be entitled to a discharge of those debts regardless of whether or not the ex-spouse objects in the bankruptcy.  You get in trouble and then as an extra slap, you get no protection from those debts.
This does not mean that such debts CANNOT be discharged in some way, though.  As a matter of law, these obligations cannot be discharged in a Chapter 7 Bankruptcy, but that does not preclude someone from discharging those same debts in a Chapter 13 Bankruptcy.  A Chapter 13 Bankruptcy gives rise to a discharge that attorneys commonly state is a “super-discharge” meaning that those same obligations that are NON-dischargable in Chapter 7 may be addressed and discharged in a Chapter 13.  The filing of a Chapter 13 bankruptcy shows that “best efforts” are being given to pay something back to creditors.  In the Eastern District of Kentucky, this may mean that a restructuring may mean that those obligations are wiped out just as they would be in a Chapter 7 or that they’ll be wiped out after receiving a few pennies on the dollar toward the obligation.  Chapter 13 is an effective way to avoid the issues caused by a Chapter 7 filing where a divorce decree proves problematic.