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Divorce debts can be discharged in bankruptcy if they are not in the nature of alimony, maintenance or support. If the divorce debt is a property settlement, it can be discharged in the bankruptcy. Therefore, the key issue is determining whether the debt is a property settlement or alimony, maintenance or support. See In re Baron, 283 BR 328 (MD FL, 2002). The way it works is the debtor files his bankruptcy petition and lists all his creditors. If a creditor feels like his debt is non-dischargeable, he files an adversary proceeding in bankruptcy court. An adversary proceeding is a lawsuit within the bankruptcy. If the debtor wins the adversary proceeding the debt is erased. If the debtor loses the adversary law suit then the objecting creditor's debt will remain, but all of the debtor's other debts will be discharged.

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The key issue when classifying the debt is the intention of the parties or the divorce court at the time the agreement or order was made. See In re Hoberg, 300 BR 752 (CD CA, 2003). The most important question in determining whether the debt is in the nature of alimony, maintenance or support is the purpose of the obligation at the time of the divorce. Where the obligation serves as a spouse's income, then it is going to be classified as support, regardless of the terminology of the order or agreement. See Cummings v. Cummings, 244 F. 3d 1263. The present needs of the parties should not be considered by the bankruptcy courts on the issue of classifying the debt as support. The courts should consider the financial circumstances of the parties at the time the agreement was made and should not consider the current financial positions of the parties at the time of the bankruptcy filing. In re Chedrick, 98 BR 731.

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A factor the courts consider is how the divorce related obligation is paid. If the obligation terminates upon remarriage or a child turning a certain age, that is usually an indication that the obligation is support and not a property settlement. See In re Sorah, 163 F. 3d 397 (CA 6, 1998). If the obligation payment is supposed to be made in one lump sum as opposed to installments, that is an indication that the obligation is a property settlement which can be discharged in bankruptcy. See Duffy v. Taback, 331 BR 137.