Divorce Court Can’t Decide What Obligations Survive Bankruptcy

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By Daniel Gill

A Georgia Superior Court judge couldn’t order that a divorce settlement can’t be wiped out in bankruptcy, a federal bankruptcy judge ruled March 8 ( Norton v. Norton (In re Norton) , 2017 BL 73251, Bankr. N.D. Ga., CASE NUMBER 16-10323-WHD, 3/8/17 ).

Even though the divorce decree provided that "[t]he property division payments to the Plaintiff shall not be dischargeable in bankruptcy,” Judge W. Homer Drake of the Northern District of Georgia makes clear that the Georgia court lacked jurisdiction to decide the effect of bankruptcy on the divorce.

While it is well settled that agreements between parties can’t provide that an obligation isn’t subject to bankruptcy relief, this opinion makes clear that even a state court judgment or decree can’t do that.

Less than two weeks after Karen and Harry Norton’s divorce became final, he filed for Chapter 13 bankruptcy, which allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

After the payments are made, the remaining debt will be discharged, or erased. Certain kinds of debts aren’t discharged by bankruptcy, however. These exceptions include support obligations arising from divorce but don’t include property settlements distinct from support.

The divorce decree included provisions that Harry would pay Karen $1,300 a month for child support and $53,000 “as part of the property division,” the court said. But the decree also said that “the property division payments to the plaintiff shall not be dischargeable in bankruptcy,” it said.

Karen sued in the bankruptcy case for a declaration that the $53,000 obligation wouldn’t be discharged by Harry’s bankruptcy.

The bankruptcy court rejected the Georgia court’s decree that the obligation wouldn’t be dischargeable because it violated public policy. In addition, it found that the state court lacked jurisdiction to make that call.

The bankruptcy court performed an analysis of the nature of the debt—ignoring whether the parties or the state court called it support or property division—to determine that it belonged to the latter category and could be discharged in bankruptcy if and when Harry completed his plan payments.

Karen Norton was represented by David S. Ballard, Fayetteville, Ga. Griffin E. Howell III, Griffin, Ga., represented Harry Norton.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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