Court rules that indemnity provision is not support

| Jul 5, 2016 | Chapter 13 Bankruptcy |

Texas residents may know that student loans and back taxes are not usually discharged by a Chapter 7 or Chapter 13 personal bankruptcy, but they might not be aware that alimony and maintenance payments required by divorce settlements could also be nondischargeable. A Virginia woman tested the scope of this exemption by filing a lawsuit claiming that a property division agreement she had entered into with her ex-husband amounted to alimony, support or maintenance, but her arguments failed to sway a bankruptcy court judge.

The woman’s argument hinged on the indemnity provision of the property settlement. She claimed that this financial stipulation amounted to a pledge of support, but the judge concerned pointed out that the couple had expressed unambiguously their intent not to seek maintenance or alimony. The court also looked into the financial situations of the woman and her ex-husband at the time the settlement was reached.

The Chapter 13 debtor concerned was sued after he had ceased to make mortgage payments on the marital residence that he had been granted exclusive possession of in the property settlement. The woman said that this affected her credit score and resulted in additional fees and costs. The court determined that the indemnity provision addressed liabilities associated with the distribution of marital property and did not create an obligation to pay support, alimony or maintenance.

Going through a divorce can be a stressful time both emotionally and financially. Attorneys with debt relief experience may help divorced clients who are seeking a fresh financial start by assessing the settlement agreements to determine the obligations that could be discharged by a Chapter 7 or Chapter 13 bankruptcy.