Divorce, property settlement and C-13

[Slingerland]

My separation and divorce from the ex has been going along smoothly until today... I thought we had the property settlement worked out, we are getting along in front of kids, even sharing a joke or two (some effort of course.) But today I got the final version of the property settlement for signing, and her attorney added something.

As part of the equity division, I agreed to take on the loan for our son's car and more than half of the joint debt. Ex-wife has known all along I plan to file a C-13, 100% payback plan, and that the joint debt would be filed as "unsecured, special class paid 100%" to doubly protect her. But today, the final paperwork has this:

• Plaintiff will pay 100% of the following debts through defendant by writing a separate monthly check to defendant. Defendant will make the physical payment.
• Debts include: (list of debts here)
• Plaintiff may not include these debts in any bankruptcy filing.

At first I thought her lawyer simply doesn't know anything about bankruptcy, but upon further review I'm wondering: is her lawyer crazy? Trying to rack up billable hours? Or can a divorce settlement actually trump bankruptcy law?

Needless to say, this kink will cause me to have to pay more hourly fees to MY lawyer as well. And of course she's out of the office on vacation through the weekend. Sigh.

Thanks!

[powerless]

Interesting. BK laws say all debt must be included at least that's my understanding, so you have to include those debts in your filing.

What happens if you pay your ex and your ex doesn't pay the creditors?

[AngelinaCat]

I am so sorry to read of this 'kink'. Just make sure you don't sign ANYTHING until you are satisfied with the terms.

[AngelinaCat]

Interesting. BK laws say all debt must be included at least that's my understanding, so you have to include those debts in your filing.

I am not a CH13 person, but I have read here of mortgages and car notes being paid outside of the Ch13. I do not know the details, but you are correct; all debts must be disclosed.

[Slingerland]

Yeah I suspect her lawyer:
1) Doesn't know anything about bankruptcy
2) Simply means for me to pay the debts outside the plan and didn't say it well
3) Wants to rack up more fees
4) Any two of the three above
5) All of the above

[Slingerland]

Interesting. BK laws say all debt must be included at least that's my understanding, so you have to include those debts in your filing.

What happens if you pay your ex and your ex doesn't pay the creditors?

I was thinking about that... since I know what the monthly payments are, I could counter by offering money order/cashier's check made out to the creditor.

But to me the big question is what the trustee would do seeing this. As you say, ALL debts MUST be reported, even if not paid through the plan.

[LadyInTheRed]

It is true that you must include all of your debt in your BK. I think the provision saying you won't is unenforceable.

Your wife's attorney is afraid that you will have your liability for the debt discharged, stop paying and leave your wife on the hook for the debt. By requiring you make the payment directly to your wife, the attorney is probably taking advantage of 11 USC § 523(a)(15), which excepts from discharge a debt:

(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;

If you are going to be in a 100% plan, the provision to pay your wife directly could cause complications in connection with unsecured debts because you don't want your trustee to pay the same debt that your wife is supposed to pay after receiving a check from you. But, the creditor will want to make sure it gets paid through the plan instead of relying on your wife to make the payments. I suggest you have your divorce attorney communicate with your bankruptcy attorney on how best to deal with this.

[Slingerland]

A quick update... my wife's attorney is offering to let me pay the creditors directly, but outside the trustee plan. She doesn't want the "IIB" notation on her credit report. There are three debts: two autos (my car and our son's car) and one unsecured personal loan (hers, but I had to co-sign.)

I don't think this will fly past the trustee since he requires all secured debt (except mortgages) be paid through him. BUT I think LITR is on the right path above, that by making this a court order, it should override the trustee's position.

[ValleYum]

This kink got my curiosity up and look what I found (this was just researching the Code section LITR mentioned and Chapter 13 in my Google query - no disrespect meant to you, LITR!!):

On its face section 523(a)(15) sounds like it would except from discharge all property settlement debts that are not DSO’s. This is not necessarily so, and here is why.

Section 523(a)(15) does not apply in chapter 13 cases. The reason for this result is that the chapter 13 discharge provision in 11 U.S.C. section 1328(a)(2) does not include section 523(a)(15) in the exceptions to the chapter 13 discharge. This means that property settlement debts are still dischargeable in chapter 13. Because property settlement debts are still dischargeable in chapter 13 cases, it is important to know what chapter of bankruptcy the debtor filed.

http://www.brazengordon.com/wordpress/bankruptcy-lawyer/bankruptcy-and-divorce/

and a revision (due to some more Chapter 7 info) is here: http://www.brazengordon.com/Revised_...y_Article2.pdf

Sounds like unless those payments are considered a DSO (and it sounds like they are a property settlement to me), the debt will be (could be) dischargeable in a Chapter 13 then, right?

I damn sure wouldn't send her the money to pay the debts directly (BTDT)

Just thought it was interesting on this gloomy Washington state morning...

[LadyInTheRed]

- no disrespect meant to you, LITR!!):

I never take offense at somebody checking info I post and am glad to be corrected. Thank you! I did find that section odd because I thought there was some difference between a support obligation and other obligations under a marital settlement agreement.

A quick update... my wife's attorney is offering to let me pay the creditors directly, but outside the trustee plan. She doesn't want the "IIB" notation on her credit report. There are three debts: two autos (my car and our son's car) and one unsecured personal loan (hers, but I had to co-sign.)

A BK can only appear on her credit report if she files BK. If payments are kept current, there shouldn't be any negative notations on her credit report.

I don't think this will fly past the trustee since he requires all secured debt (except mortgages) be paid through him. BUT I think LITR is on the right path above, that by making this a court order, it should override the trustee's position.

The trustee doesn't always get what the trustee wants. It is possible that the judge would approve making the car payments directly. The problem with the unsecured loan is that if the creditor files a claim, the trustee will pay a portion of what goes to unsecured creditors to that creditor which could result in overpaying the creditor. But, maybe that could be dealt with somehow.

Based on the info provided by ValleYum, it sounds like your non-support obligations to your wife will be dischargeable in BK. I'm not sure any of these provision will be enforceable in BK. But, I also wonder what can happen in you sign a divorce settlement and then immediately file BK. If there would be a basis to have the divorce obligations rule not dischargeable. I suggest you talk to a BK attorney before signing anything.