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Chapter 13 bankruptcy and divorce agreements

Kentucky residents who have excessive amounts of debt may decide to file for Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy does not require a liquidation of non-exempt assets. Instead, people who earn a steady income can agree to settle their outstanding debts through a court-approved repayment plan.

Some debts can be discharged in Chapter 13 bankruptcy while other debts are not eligible, such as spousal support. In June, a court ruled that a Chapter 13 debtor could discharge his financial obligations under a divorce agreement because they did not fit the definition of spousal maintenance.

The Chapter 13 debtor was sued by his ex-wife after he failed to make payments on the property that he had retained after the divorce. Though the divorce agreement required the debtor to remove his ex-wife's name from the mortgage, he did not do so and her credit score was damaged as a result. When the ex-wife sought financial compensation for her damages, a bankruptcy court found that the debtor could discharge those obligations.

A person who is considering filing for bankruptcy may want to talk to a lawyer about which chapter to file under. Chapter 13 requires the court approval of a repayment plan that lasts for a period of three to five years. After the successful completion of the plan, most remaining unsecured obligations are discharged. There are a variety of requirements associated with this chapter, including pre-filing credit counseling, that an attorney can outline while describing other forms of debt relief that may be available to a client.

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