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Support not guaranteed under property settlement agreement

On Behalf of | Jul 8, 2016 | Bankruptcy

According to a ruling passed in a Virginia bankruptcy court, obligations that are not related to maintenance, alimony or support can be discharged in Chapter 13 bankruptcy. The decision was based on the judge contention that the plaintiff, the ex-wife, did not prove that there was an agreement for the indemnity provision in a property settlement to create an obligation. The court further stated that under Section 1328(a), the Bankruptcy Code Section 523 discharge exemption for domestic support obligation does not apply to a Chapter 13 discharge. Other factors that contributed to the judge’s ruling included both the financial standing of the plaintiff and the defendant and the purpose of the obligation when the property settlement was agreed upon.

The property settlement agreement that the two parties entered into had an indemnity provision that affirmed the debtor, the ex-husband, would be responsible for all costs associated with the mortgage and would remove the plaintiff’s name. Three years later, the debtor filed for Chapter 13 bankruptcy and later violated the agreement by failing to make payments.

The plaintiff alleges that the debtor reneged on the agreement by not removing her name, failing to make the mortgage payments and failing to sell the house, all of which resulted in damage to her credit worthiness and difficulty in obtaining her own home. The debtor contended that the property agreement waived any claims of spousal maintenance or support.

The judge determined that the standard for proving explicit mutual intent was not met. He also stated that the express purpose of the indemnity clause was to aid in allocating debt and separating property.

A property settlement agreement does not serve as an obligation of domestic support under bankruptcy. If concerns arise regarding the obligation of certain kinds of debt during a bankruptcy, a bankruptcy attorney should be consulted.