When the bankruptcy code was overhauled in 2005 a new classification was created- the Domestic Support Obligation or “DSO”. Domestic Support Obligations include, but are not limited to child support, post-separation support, alimony, and even certain attorney fees. Prior to 2005 Child Support was never dischargeable in bankruptcy and that has not changed; however the rules on spousal support certainly have. DSO’s are non-dischargeable in Chapter 7 bankruptcy, and must be paid in full in a Chapter 13 bankruptcy. Property Distribution or Equitable Distribution debt is not classified as a DSO and often can be discharged in Chapter 13, but not Chapter 7.
So, what exactly is a DSO?
Well let’s look to the bankruptcy code itself in the definition section at 11 U.S.C. § 101(14A):
(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is--
(A) owed to or recoverable by--
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of--
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
A DSO can be created by Court Order or by contract such as a Separation Agreement. A DSO can be owed to an Ex, the government, or even to third parties such as an attorney of an ex-spouse or grandparents of a child. As mentioned above property division or Equitable Distribution debt assigned by a Court is not dischargeable in Chapter 7 under Section 523(a)(5) and 523(a)(15) of the US Bankruptcy Code. The same cannot be said about Chapter 13 bankruptcy. Section 523(a)(15) does not apply to Chapter 13 (See Section 1328(a)(2)), and may allow for discharge of property division debt over the 3-5 year Chapter 13 plan at pennies on the dollar.
If you are about to sign a Separation Agreement, take extreme caution you do not create a liability you can’t discharge in bankruptcy. If you agree to pay joint credit cards and then decide to file bankruptcy, you may be able to get the mortgage company or credit cards off you back, only to have your Ex sue you. If you are the one seeking support, look to create a DSO, so your EX can’t discharge you in bankruptcy.