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Domestic Support Obligations and Bankruptcy

Domestic Support Obligations and Bankruptcy

Domestic Support Obligations, known as DSO, are typically not dischargeable. Domestic support obligations are defined in the Bankruptcy Code as covering debts to a spouse, former spouse or child of the debtor and not that is incurred from a divorce or separation or in connection with a separation agreement, divorce decree or other order. This distinction is of little relevance in a Chapter 7 as it is all held to be non-dischargeable.

However, the difference is significant in a Chapter 13 in determining dischargeability of debts arising from a divorce or separation. The distinction is between domestic support obligations and and other types of obligations that arise from the ending of a marital relationship. Domestic support obligations are still not dischargeable in a Chapter 13 plan and in order to have a confirmable plan, it must provide for full payment of priority claims.  If an obligation is not a support obligation but arises from a divorce or separation agreement, the Debtor is only required to pay pro rata shares of the funds paid in the Chapter 13 as they would pay any other unsecured creditor.

11 U.S.C. § 101 defines domestic support as a debt owed to or recoverable by a spouse, former spouse, or child that is in the nature of alimony, maintenance, or support that is established by court order and not assigned to a governmental agency. The label given to a debt does not control in determining dischargeability. Rather, the Court will look at the nature of the obligation and the substance of the decree or agreement to determine whether the obligation is in fact a domestic support obligation. Many courts have held that attorney’s fees owed to a former spouse of the former spouse’s attorney meet the standard for domestic support and therefore are not discharged in a Chapter 7 bankruptcy.

If involved in a settlement of dissolution or other martial action, be sure to set forth clearly the intent of parties and determine the nature of the obligations. Simply calling obligations domestic support does not itself make them domestic support obligations and does not make then non-dischargeable in a bankruptcy. The difference between and Chapter 7 and a Chapter 13 for a Debtor with significant marital debt can be huge; therefore, careful consideration should be given in determining under which chapter of bankruptcy to file. Consult with a bankruptcy attorney before making this decision.

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