What happens to domestic support obligations, including attorney fee awards, when the person owing the support files for bankruptcy?
Bankruptcies are common today. Most debts are discharged and become uncollectable. Domestic support obligations are an exception and collection of these obligations may actually become easier after the debtor has filed a bankruptcy.
Any debt that is for a "domestic support obligation" is not dischargeable in a bankruptcy. However, it is not always easy to identify the types of obligations that constitute support in a property settlement agreement or divorce decree. For instance, an area of dispute in the courts is the question of whether attorneys' fees can be found to be non-dischargeable under the bankruptcy code. Generally, the award of attorneys' fees and other professional fees, if incurred on behalf of the non-debtor spouse or ex-spouse or the debtor's children, will be deemed non-dischargeable. In re Chang, 163 F.3d 1138 (9th Cir. 1998).
The intent of the parties or the intention of the state court judge at the time of the property settlement decree or the entry of the decree is dispositive to the determination of whether an obligation is in the nature of support. The factors that a Court considers in deciding whether an obligation under a property settlement agreement or decree is in the nature of support or is a division of property are:
- The need of the recipient spouse for spousal support at the time of divorce
- The labels given the obligation in the document
- The context or location of the obligation within the document
- The parties' negotiations and understandings at the time of the agreement or decree
- Whether the obligation is payable in a lump sum or by periodic payments
- The relative earning power of the parties at the time of the decree or agreement
- Whether the non-debtor recipient would've been entitled to an award of spousal maintenance or child support under applicable state law
- Whether interest accrues or is payable regarding the obligation
- Whether the obligation terminates on the death or remarriage of the non-debtor recipient
- The tax treatment by the parties of the obligation
Bankruptcy Courts have generally applied these factors liberally in favor of the non-debtor recipient and have found a number of obligations to be nondischargeable as domestic support obligations, despite the "labels" placed on the obligations in the agreement or decree.
If you have any questions concerning the impact that a former spouse's bankruptcy may have upon your divorce decree, you may contact our office to review the decree and advise you of your options.
