Section 523(a)(5) of the Bankruptcy Code   provides that a domestic support obligation is exempt from Discharge.  What this means is that child support, alimony, and any debt classified as a “support obligation” will typically survive bankruptcy.  What is less clear, though, is what happens to property settlements in bankruptcy.  It is well known that regardless of the terms of a marriage settlement agreement, the marriage settlement agreement is not binding on third party creditors   in the event of a default in payment.  Creditors have the right to seek recovery from any party which was originally responsible for the debt no matter what the marriage settlement may provide.

Typically how this plays out is one party is required by the marriage settlement agreement to fully pay a debt, , such as a credit card, which was incurred in both parties’ names but then the debt is never paid.  The creditor, in this case the credit card company, has the right to seek collection against either party.  And the final ingredient is that the party that was supposed to pay the debt goes and files for bankruptcy.

Section 523(a)(15) of the Bankruptcy Code provides, in part, that a bankruptcy discharge “does not discharge an individual Debtor from any debt … that is incurred by the debtor in course of a divorce or separation or in connection with a separation agreement, divorce decree, or other order of the court….”   Many cases have used the following test to determine if the debts is dischargeable: If the discharge of the obligation would harm the spouse to whom the obligation is owed more than it would harm the person who owes it, non-support obligations from a divorce or separation are then non-dischargeable in a Chapter 7.  However, for the party filing bankruptcy, Chapter 13 is more forgiving because debts dischargeable in a chapter 13, but not in chapter 7, include debts arising from property settlements in divorce.

Finally, none of this will stop the creditor calls.  You will want to consult with counsel determine if you need to file a “Proof of Claim” to preserve your rights in the bankruptcy.  It may also be necessary to file an adversarial proceeding to prevent the debt from being discharged by the spouse who agreed to pay it. Finally, you may still get stuck paying off the third party creditor to protect your credit rating and yourself, and then chasing your ex-spouse for the debt.