Why Do I Have to Pay My Ex-Spouses’ Student Loan Debts??
In 2005, the US Bankruptcy laws were amended and one prominent amendment elevated the status of certain debts owed to your ex-spouse. Specifically, any debts owed to your ex-spouse for alimony or child support survives your bankruptcy. This holds true whether you owe back alimony/child support (called ‘arrears’) or those obligations in the future. Thus, if you are considering bankruptcy and you have child support and/or alimony payments, the Bankruptcy Code makes those obligations “nondischargeable”.
However, not all debts owed to an Ex-Spouse are just alimony or child support. Sometimes, spouses will agree to split marital debt in a Separation Agreement or the Court will force the same in an “Equitable Distribution Order”. Often times this takes the form of debt accrued during the marriage like medical debt and credit card debt. For example, let’s say that one spouse buys a new washer and dryer for the family’s house with her credit card. Under North Carolina law, if the other spouse enjoys a “benefit” from that debt (which surely a washer and dryer would be), then the debt should be considered a marital debt if it was accrued while married. In state-court divorce proceedings, often a Judge will be tasked with this decision: what is marital debt and should it be borne by both parties.
Regarding the bankruptcy aspects of a marital debt, If a Judge decides that marital debt exists and that you should be responsible for all or a portion of your ex-spouse’s debt then that marital debt becomes your debt! Now, to be sure, you do not automatically owe the creditor; remember, you never signed anything with the credit card company, rather your ex-spouse did. Your obligation is to your ex-spouse and his/her obligation is to the creditor. In bankruptcy, that marital debt obligation to your ex-spouse is nondischargeable in a Chapter 7 liquidation. Therefore, in a Chapter 7, child support, alimony, and marital debt obligations all survive the bankruptcy discharge and you will owe all of it after your bankruptcy is over.
The one exception to this rule relates to marital debt obligations and Chapter 13 bankruptcy. In fact, marital debt obligations can be discharged if you complete your entire Chapter 13 bankruptcy, which requires a payment plan over 3-5 years; however, your child-support & alimony payments are still nondischargeable.
Very recently (June 16, 2015), the North Carolina Court of Appeals ruled for the first time that an ex-spouse’s student loans may be considered marital debt. See Warren v. Warren (2015) Why is this a big deal? Well, first, student loan debt in America is estimated at $1.2 trillion (yes, TRILLION), which exceeds the total amount of mortgage debt and credit card debt … COMBINED! Thus, there is great likelihood that most spouses getting a divorce carry some amount of student loan debt. Second, the Warren case paves the way for a Judge to stick you with your ex-spouse’s student loans if: (a) the loans were accrued during the marriage; and (b) they somehow benefitted the marriage. In determining whether the student loans benefitted the marriage, a Judge is likely to consider whether the loans helped pay for your general living expenses and whether you enjoyed the benefits of your ex-spouse’s increased earning capacity.
In the future, if a Judge should add your ex-spouse’s student loans into ‘marital debt’ and forces you to be obligated to pay all or a portion thereof, be wary that filing bankruptcy may have limited opportunities for you to discharge the marital debt. If you have a large marital debt obligation, Chapter 13 bankruptcy may be the only way you can get relief from that obligation.
If you would like further information about this or other bankruptcy, marital debt or student loan debt questions, please click here to contact our firm, Arnold & Smith, PLLC or call (704) 370-2828 and ask to speak with me, Bryan W. Stone, for a free initial bankruptcy consultation.