HEALTH INSURANCE PREMIUMS NON-DISCHARGEABLE IN BANKRUPTCY

April 29, 2015 by Craig A. Squitieri ·

In the recent New Jersey Bankruptcy Court Chapter 13 case of In re Crane, Case No. 14-30248-ABA, Judge Altenburg held that an unpaid health insurance premium, which was ordered to be paid by the debtor to his former spouse under a state court divorce property settlement agreement ("PSA") was non-dischargeable as a "Domestic Support Obligation" under 11 U.S.C. 523(a)(5).

In Crane, the PSA specifically stated that the debtor owed his former spouse $54,842.16 in arrearages for health insurance premiums. The debtor sought to discharge that obligation by the filing of a Chapter 13 bankruptcy. The debtor argued that the original intent of the state court in ordering that he pay the health insurance premiums of his former spouse was not for support but rather a way for the Debtor to share his employment benefits package with his former spouse as equitable distribution, which may be dischargeable.

In reaching its decision in favor of non-dischargeability of the $54,842.16 debt, the court found compelling the provision in the PSA that stated that the "Major medical insurance is a prime consideration of the parties, especially for the benefit of the Wife...".

After citing to numerous bankruptcy court cases which held that medical expenses are in the nature of support (thus non-dischargeable), the court held that "[o]n its most basic level, this debt falls under the umbrella of medical expenses and as such is in the nature of support. In light of the express language of the documents submitted, the court is hard-pressed to come to any conclusion other than the Insurance Premiums are the nature of support and therefore fall squarely within the definition of a domestic support obligation as defined by 11 U.S.C. § 101(14A). To that end, by virtue of the fact that the $54,842.16 debt constitutes a domestic support obligation, such debt is nondischargeable under 11 U.S.C. § 523(a)(5) and entitled to priority status in this chapter 13 case under 11 U.S.C. § 507(a)(l)(A)."