Too Much Debt to Pay in Divorce?

    Bankruptcy proceedings are regulated by the federal court system under Title 11 of the United States Code. That means it is the same in every state with some few exceptions regarding the kinds of exemptions someone filing bankruptcy can claim. It’s important to understand that not all debts are paid off under bankruptcy proceedings.

For example, home mortgages and delinquent back alimony and child support debts cannot be cleared in a bankruptcy. Some taxes, educational loan bills, and money that is owed as a result of a court order such as restitution to victims or fines levied after a criminal conviction cannot be satisfied under a bankruptcy proceeding. There are four types of bankruptcy. They are:

Chapter 7
One of the most common forms of bankruptcy filed in the United States, Chapter 7 can be used by single people, married couples, partnerships and corporations. Unlike other forms of bankruptcy, which require either reorganization plans or repayment schedules, Chapter 7 bankruptcies are liquidation proceedings. Usually this means people filing under Chapter 7 agree to allow their property – - with some exemptions that can vary state by state - - to be sold off to raise money to pay off their debts.

Chapter 11
This form of bankruptcy requires a reorganization plan that allows the debtor to stay in business. These reorganization plans detail how debts are paid and must be approved by the court.

Chapter 12
Family farmers or those families engaged in commercial fishing can use this form of bankruptcy to file reorganization plans if their debts fall below certain limits. This reorganization plan must also be approved by the court.

Chapter 13
This form of bankruptcy can be used by single people who have what the federal government calls “a regular income.” Under Chapter 13 a repayment plan is set up that pays off debts using money earned over a period of three to five years. The person filing a Chapter 13 bankruptcy can force creditors to accept a debt management plan that stops interest on credit card debts from accumulating. This repayment plan must be approved by the court.


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Source: Administrative Office of the U.S. Courts.