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Property settlements not exempt from bankruptcy discharge

Even those who are on solid financial ground may start having money trouble after going through a divorce, so reaching a practical settlement is important when dissolving a marriage. Minnesota residents may need to know how debt and bankruptcy proceedings affect a divorce arrangement.

Federal laws govern what can be discharged in bankruptcy proceedings, and bankruptcy could discharge obligations from divorce settlements even when a divorce decree stipulates that payments aren't dischargeable in Georgia. A bankruptcy court in Georgia determined that a state court cannot decide how bankruptcy might influence a divorce order.

In this case, a man filed for Chapter 13 bankruptcy shortly after his divorce was finalized. The couple's divorce degree stipulated that the man pay the woman $53,000 as part of the property division arrangement in addition to $1,300 monthly in child support. The divorce decree stated that the property division sum could not be discharged through bankruptcy, but the court did not have the jurisdiction to decide this.

The bankruptcy court ruled that the property division payment could be erased if the husband fulfills his obligations under Chapter 13. Child support and alimony are exempt from discharge, but the court ruled that property settlements are distinct from support and not exempt. It was previously established that parties cannot make an agreement stipulating that a responsibility is not subject to bankruptcy relief, but this ruling includes court judgments and divorce decrees.

While a support order is meant to be long-term when finalized in court, modifications could be warranted if circumstances change with either party after a divorce. If the party receiving payments loses a job or becomes ill, an attorney could ask the court to increase a support order while the paying party's attorney could ask for a decrease in a similar situation.

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