Is a Hold Harmless Dischargeable in Bankruptcy?

Posted By : admin
Category : Bankruptcy
25 - Aug - 2015

Again and again, we see the intersection of bankruptcy and divorce in Indiana.  Often, an ex-spouse has no notice that his or her ex is going to file bankruptcy.  As a result, when he or she receives a notice of bankruptcy filed by their ex in the mail all kinds of questions begin circling.  One question that we hear often at Halcomb Singler, LLP, is whether a hold harmless is discharged as a result of the entry of a bankruptcy discharge.

A “hold harmless” is a term that lawyers often use to describe language typically used in a divorce decree or divorce settlement agreement and dictates which spouse will be responsible for paying a loan.  For example, if Jane and John get a divorce and their decree states that Jane will keep the 2012 Mini Cooper and that Jane will hold John harmless for the loan on the Mini, it means that Jane will be responsible for the loan even though when they purchased the Mini it was a joint debt.  It also means that if Jane fails to make the Mini payment and the bank comes after John, the joint debtor on the loan, that Jane violated the divorce agreement.

Judge Lorch, presiding in the Southern District of Indiana Bankruptcy Court examined whether a hold harmless would be dischargeable in an adversary proceeding o Buck v. Titzer, Adversary No. 12-57015.  In that case David Buck and Randi Titzer had gotten a divorce in 2010.  The parties agreed that Randi Titzer would have sole ownership of the parties 2009 Ford Fusion and that Randi would hold David Buck harmless as to the loan for the vehicle with Heritage Federal Credit Union.  Randi Titzer filed a Chapter 7 bankruptcy in 2012, and David Buck initiated an adversary proceeding, arguing that the hold harmless was non dischargeable as a result of 11 USC section 523(a)(15) because the debt was incurred by Titzer in the course of a divorce proceeding.  The Court agreed with Buck, stating that Titzer could not discharge her obligation to Buck as a result of the filing of her Chapter 7 bankruptcy and found in favor of Buck.

As a result, some hold harmless provisions are non dischargeable.  However, it should be noted that some hold harmless provisions in a Chapter 13 bankruptcy can be discharged through a bankruptcy proceeding.  Changing one fact in the above-explanation may lead to a different conclusion, so it is very important to seek guidance from an experienced bankruptcy attorney to determine if you have any nondischargable debts.  In addition, it is important to have a divorce/family law attorney that understands how bankruptcy can intersect with divorce and who drafts the settlement agreement with an eye on the protection of his or her client in the event that their ex files for bankruptcy.

At Halcomb Singler we practice in both the areas of bankruptcy and divorce.  If you need to get a fresh start through the bankruptcy process or are at a point where you have decided to end your marriage and live in the Central Indiana/Indianapolis area, we can help.  Call our office at (317) 575-8222 or click here.