Are Divorce Debts Dischargeable in Chapter 7 Bankruptcy in Missouri?

Ending a marriage can have significant financial consequences — which can sometimes make bankruptcy and divorce go hand in hand. While filing for Chapter 7 bankruptcy may help to give you a fresh start, it’s important to understand that not all debts can be erased. Notably, the Missouri Court of Appeals has reiterated the federal bankruptcy law by ruling in Henderson v. Henderson that debts ordered to be paid in divorce are not dischargeable in bankruptcy.

Can You File for Bankruptcy and Divorce at the Same Time?

During your marriage, you and your spouse may have incurred a variety of marital debts. From credit card debts to car loans, mortgage payments, and personal lines of credit, marital debts must all be divided in divorce. While you can file for bankruptcy and divorce at the same time, it’s essential to consider the implications of doing so.

It’s vital to be aware that you are not permitted to discharge debts ordered in divorce in bankruptcy. Under 11 U.S.C. § 523 (a)), in a Chapter 7 bankruptcy, “‘all debts owed to a spouse, former spouse, or child of a debtor are non-dischargeable if incurred in the course of a divorce proceeding, notwithstanding the debtor’s ability to pay the debt or the relative benefits and detriments to the parties.’ In re: Tarone, 434 B.R. 41, 48 (Bankr. E.D. N.Y. 2010).”

If you file for joint bankruptcy with your spouse before you divorce, you can wipe out all dischargeable marital debts owed by both of you, along with your individual debts. However, this may not be the best option if there are few marital debts, and your spouse owes many individual debts.

How Does the Bankruptcy Automatic Stay Impact Divorce?

When a party files for bankruptcy, an automatic stay goes into effect until the bankruptcy case is closed. The stay prohibits creditors from taking action to collect any debts they are owed. Importantly, the automatic stay in bankruptcy can potentially delay divorce proceedings as it prevents the divorce court from dividing marital property.

There are several exceptions to the automatic stay when it comes to bankruptcy and divorce. The automatic stay does not affect the following domestic relations matters:

• Establishing or modifying child custody
• Legal proceedings in connection with domestic violence
• Establishing or modifying child support
• Establishing or modifying spousal support
• Paternity proceedings

Critically, domestic support obligations such as child and spousal support are not treated as ordinary debt. They are considered priority debts and cannot be discharged in bankruptcy. Support must also continue to be paid once the automatic stay goes into effect to help ensure the financial well-being of the children and a dependent spouse. Enforcement actions related to support obligations — including wage garnishment — may also continue during the course of bankruptcy proceedings.

The Henderson v. Henderson Ruling

When dealing with the issue of bankruptcy and divorce, Missouri courts are guided by the decision in Henderson v. Henderson, No. 98357 (Mo. App. E.D., December 26, 2012). In the 2012 case, the Missouri Court of Appeals reiterated that neither a domestic support obligation nor a marital debt is dischargeable in bankruptcy.

In Henderson, the parties divorced in 2010 and entered into an agreement which specified their obligations to pay their marital debts. The agreement contained language throughout that the said debts were not dischargeable in bankruptcy. Nevertheless, the ex-husband proceeded to file for Chapter 7 bankruptcy in 2011 to discharge his portion of the obligations.

The ex-husband’s petition to discharge the debts was granted — and the ex-wife did not raise any objections in bankruptcy court. However, she subsequently filed an action against the ex-husband for contempt in connection with the debts that were discharged. The ex-husband asserted that she waived her right to raise an objection since she failed to do so during the bankruptcy proceeding.

The trial court determined that only a portion of the marital debt constituted a domestic obligation, which was nondischargeable in bankruptcy. Accordingly, the ex-husband was only held responsible for a specific portion of the debt. Both parties appealed the trial court’s decision. The Missouri Court of Appeals reversed the decision, finding that the trial court erred in finding that the debt was partially dischargeable.

Contact an Experienced Missouri Divorce Attorney

If you are concerned about filing for bankruptcy and divorce, a knowledgeable divorce attorney can best advise you regarding the financial implications. Divorce and family law attorney Mark A. Wortman provides reliable representation and skillful counsel to clients in the greater Kansas City, Missouri area for divorce and the complex financial issues that are often associated with the process. To schedule a confidential consultation to learn how he can assist you, please contact him today online or by calling (816) 523-6100.