Court Skirts Issue of the Impact of Bankruptcy on Divorce Debt Enforcement by Creditor of Spouses

It is fairly common for a divorce judgment to order that one ex-spouse be solely responsible for certain joint debts, and pay those debts directly to the creditor. Such an order has no impact on the creditor, who still has the right to pursue collection of the debt from both ex-spouses. If the responsible ex-spouse (“payor”) subsequently receives a bankruptcy discharge, the creditor is then only able to seek payment from the other ex-spouse (“non-payor”).

The non-payor often points to the divorce judgment as a defense against the creditor, only to be informed that the divorce judgment is not a defense, and only gives the non-payor a right to pursue reimbursement from the payor. Due to the cost of further divorce litigation, on top of payment of the debt itself, the non-payor often does not pursue reimbursement. The recent decision by the Maine Supreme Court in Collins v. Collins, 2016 ME 51, 136 A.3d 708, gives the non-payor an additional option beyond reimbursement.

Richard Collins was ordered in a divorce judgment to pay debts owed to a credit union on which he and Suzan Collins were jointly liable. Id. at ¶ 3. Richard obtained a Chapter 7 bankruptcy discharge, and did not make the ordered payments. Id. at ¶¶ 5-6. At a show cause hearing, the trial court held that although Richard’s obligations directly to the credit union were discharged, his responsibility to Suzan to pay those debts was not, and therefore he was still required to make the direct payments to the credit union as ordered. Id. at ¶ 7.

On appeal, Richard argued he was only liable to the extent that Suzan made payments to the credit union. Id. at ¶ 8. The Law Court did not agree, stating that the divorce judgment established a parallel obligation from Richard to Suzan with regard to his payment of the credit union debt, as Richard’s payments would reduce and eliminate Suzan’s liability to that creditor. Id. at ¶ 14. As debts owed to a former spouse incurred in a divorce judgment are non-dischargable under bankruptcy law, the Court found that Richard “remains responsible for making payments directly to the creditor under that judgment notwithstanding the bankruptcy discharge.” Id. at ¶ 16.

The Collins decision declined to state whether or not a creditor would be able to directly enforce a debt against a discharged payor ex-spouse. Id. at note 3. Based on the significant penalties for attempting collection of a discharged debt, no creditor would want to be the test case on that point. However, rather than simply informing a non-payor that the divorce judgment has no impact on the creditor’s actions, in certain situations a creditor may want to recommend that the non-payor consult with an attorney regarding the rights the non-payor has to require payments be made by the discharged payor.

The creditors’ rights attorneys at Gosselin & Dubord, P.A. are experienced litigators whose consumer debt collection clients include credit unions, banks, finance companies, lessors and debt buyers from all over the country. If you have any questions regarding collection of consumer debts or need representation in connection with any creditor matter in Maine, please contact Gosselin & Dubord, P.A. at 207-783-5261 or collections@gosselindubord.com.