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cfortunato, Attorney
Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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Hold harmless divorce clause for HELOC dischargeable in chapter

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Hold harmless divorce clause for HELOC dischargeable in chapter 7?

I understand that hold harmless provisions and property settlement obligations from divorce are not dischargeable IF the debtor has the ability to pay them and the detriment to the spouse outweighs the benefit of the discharge to the debtor. I want to know if my situation will allow my hold harmless obligation is dischargeable.

I'm long term unemployed (with benefits due to run out next month), now divorced, received ownership of the matrimonial home as part of the divorce settlement agreement, with a market value that's just slightly more than what is owed (mortgage+HELOC). I could no longer keep up the house payments and had to file chapter 7. The HELOC is joint between my ex-spouse and I and there is a hold harmless clause in the divorce settlement agreement. If the HELOC is secured by the house, would that mean the detriment to my ex is less than the benefit of the HELOC discharge to me and is therefore dischargeable in my chapter 7 bankruptcy? If not, what scenario would allow it to be dischargeable?

cfortunato :

Hi - my name is XXXXX XXXXX I'm a Bankruptcy attorney here to assist you.

cfortunato :

A detriment-benefit analysis is not used to determine whether a debt that arises from a property settlement is dischargeable in a Bankruptcy.

cfortunato :

The thing that determines whether an obligation that arises from a divorce settlement is dischargeable is to whom the obligation is owed.

cfortunato :

if the debt is owed to the former spouse, the debt is not dischargeable in a Chapter 7, but if the debt is owed to any other party - such as a mortgage company - then that debt is dischargeable in a Chapter 7 Bankruptcy.

cfortunato :

Since your hold harmless provision involves payment to mortgage companies, and not to your ex-wife, that obligation is dischargeable in a Bankruptcy.


Thank you!

cfortunato :

You're welcome!

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