Background:
- Husband and Wife as part of their marital settlement agreement obligated the debtor to pay most of the marital debts
- Settlement Agreement did not include a hold harmless or indemnification provision.
- Agreement was incorporated into State Court Order.
- Ex-wife filed motion in State Court alleging her former husband (Debtor) failed to comply with the State Court order of marital debts.
- Husband filed Chapter 7 bankruptcy.
- Ex-wife initiated an adversary proceeding stating she had a claim against her ex-husband (Debtor) based on his failure to pay agreed-upon marital debts and her claim should be excepted from discharge. Ex-wife based her adversary complaint on premise of the specific terms of the settlement agreement and the Court Order.
Court Ruling:
- The Court recognized the “new debt”.
- A “new debt” obligation to a former spouse or spouse is created generally by a hold harmless or indemnification provision within a domestic order or agreement.
- This provision was clearly not in the agreement.
- Both parties were represented by Counsel. If either party desired a right to indemnification related to marital debts, then that obligation should have and could have been included.
- Debtor could include the marital debts in his Bankruptcy case.
I always explain to my clients that, when a written agreement is drafted and signed, you must be very careful that all provisions are clear and spelled out. An agreement can have either a negative or positive affect on bankruptcy. Each situation is taken case by case in bankruptcy. Review your agreement with a Certified Bankruptcy Lawyer before you sign.
