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Credit Card Debt May be Dischargeable in a Chapter 7 Bankruptcy, but a Court Order for Payment of Credit Card Debt to a Former Spouse is Not

tnimalan on stock.xchngMarried couples often take on debt jointly, and California’s community property laws might make spouses equally liable for a debt incurred during the marriage whether or not that was their intent. Division of debts, and enforcement of the responsibility to pay such debts, is one of the most challenging aspects of a divorce case. One former spouse’s post-divorce bankruptcy might leave the other former spouse stuck paying the remainder of a debt. The bankruptcy code offers some protection to non-debtor former spouses, and it is critically important for debtors considering bankruptcy to understand the exceptions to discharge of marital debts and debts related to a divorce decree.

A “joint debt” is any debt obligation signed by more than one person. The general rule is that joint debtors are “jointly and severally liable,” meaning that the creditor may pursue any individual debtor to recover the entirety of the outstanding debt. That debtor may pursue the other joint debtors for reimbursement. Under California’s community property laws, almost any debt incurred during a marriage is the joint responsibility of both spouses, even if only one spouse’s name is attached to the debt. In a divorce proceeding, one spouse may retain responsibility for paying certain debts, and a divorce decree may order the other spouse to make one or more payments to equalize the division of the debt.

The important principle to remember, where unsecured marital debts like credit cards are concerned, is that the divorce decree is not binding on the creditor, which may still enforce the debt against either spouse. If one former spouse receives a discharge of the credit card debt in bankruptcy, the creditor’s rights against the other former spouse remain. This is where the bankruptcy code sets limits on the discharge of divorce-related debts.

Federal bankruptcy law has two major exceptions to the discharge of debts incident to divorce. Child support and spousal maintenance obligations are never subject to discharge. 11 U.S.C. § 523(a)(5). Additionally, a debtor may not receive a discharge of other debts owed “to a spouse, former spouse, or child of the debtor” incurred as part of a divorce or separation proceeding or as part of a divorce or separation decree. 11 U.S.C. § 523(a)(15). The Bankruptcy Appellate Panel of the Ninth Circuit has noted that a “natural intermingling” occurs between debts covered by §§ 523(a)(5) and (15). In re Jodoin, 209 B.R. 132, 135 (B.A.P. 9th Cir. 1997).

A bankruptcy case may result in the discharge of debts owed directly to a credit card company. A related debt arising from a division of joint or community debt, such as a money judgment payable to the former spouse that must continue payments to the credit card company, may not be subject to discharge under § 523(a)(15). In one Ninth Circuit case, the court held that a judgment from a divorce decree, which ordered the ex-husband to make payments to the ex-wife to help with the credit card bills, was not dischargeable. Renfrow v. Draper, 232 F.3d 688, 691 (9th Cir. 2000). The ex-wife was therefore not stuck paying the entirety of the bills, but the ex-husband was unable to obtain relief from a significant debt.

When a person is unable to maintain payments on their debts with their current income, they may be able to seek relief through the bankruptcy system. Bankruptcy attorney Devin Sawdayi has represented debtors in the Los Angeles area for the past sixteen years, handling both Chapter 7 liquidation cases and Chapter 13 restructuring cases. Contact us today online or at (310) 475-9399 to schedule a free and confidential consultation regarding your case.

More Blog Posts:

How Does a Bankruptcy Filing by One Spouse Affect the Non-Filing Spouse?, Los Angeles Bankruptcy Lawyer Blawg, August 16, 2013

The Effects of Bankruptcy on Your Credit Score, Los Angeles Bankruptcy Lawyer Blawg, August 14, 2013

Child Support and Spousal Maintenance Obligations Are Not Dischargeable in Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, August 12, 2013

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