Bankruptcy and Alimony: Supported Spouse's Perspective
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What is Alimony?
Alimony is spousal support after a marriage has ended in divorce. The purpose of alimony is for one former spouse to support the other. The support is typically monetary.
Alimony is often arranged or ordered when a marriage involved one partner making income while the other partner took care of the home. "Stay at home" partners are often recipients of alimony.
Can a Couple File for Bankruptcy and Divorce at the Same Time?
Yes. Filing for bankruptcy places an automatic stay on collection actions. This means that creditors cannot collect or attempt to collect debts from the debtor while bankruptcy proceedings are occurring. This includes lawsuits and other legal actions.
What Happens to Alimony During Bankruptcy?
A supported spouse will be pleased to find out that alimony payments are generally not affected or dischargeable through bankruptcy. Section 523(a)(5) of the Bankruptcy Code provides that spousal support is non-dischargeable debt.
What Counts as Alimony?
Under bankruptcy law, only "domestic support" is non-dischargeable. Payments which are connected to domestic support, but not part of spousal support, can be discharged. For example, in one case the alimony agreement required that a late fee payment be made if the supporting spouse was late on alimony payment. The bankruptcy court ruled that the late fees were designed to encourage the payment of alimony, but the fee was not alimony itself.
Can Alimony Be Changed During Bankruptcy?
Alimony payments can be changed during bankruptcy in two cases:
Alimony is dischargeable if it was "assigned" or transferred to a third party, such as a lender. Alimony is only non-dischargeable if it is being paid to a former spouse. Once alimony is given to another party, it is no longer considered alimony.
In a Chapter 13 bankruptcy, the supporting spouse can lower the alimony during debt payment as part of the supporting spouse’s debt repayment plan.
Bankruptcy can affect the ability of the supporting spouse to pay alimony, which is a major factor used to determine support payments to begin with. The supported spouse needs to find out whether the supporting spouse can live a modest lifestyle within his or her budget while paying domestic support. If the supporting spouse cannot, payments may be reduced.
Can a Supported Spouse Take Steps to Protect Alimony During the Supporting Spouse’s Bankruptcy?
A supported spouse can enter the supporting spouse’s bankruptcy case as a creditor. A spouse can be a creditor in one of three ways:
The supported spouse receives a notice of bankruptcy. The supporting spouse has already listed the supported spouse as a creditor.
Filing a written notice of appearance with the bankruptcy court handling the supporting spouse’s case
Filing a proof of claim in an asset case. An asset case is where funds are distributed to creditors.
After the supported spouse has been registered by the court as a creditor, the supported spouse will be invited to a creditor’s meeting. A creditor’s meeting is where the bankruptcy trustee meets with creditors to discuss payment terms. Creditors should have proof of identification and their social security number before attending.
Be aware that there are different kinds of bankruptcy. Although these steps are common for all chapters of bankruptcy, the supported spouse should be aware of which type of bankruptcy the supporting spouse is filing and act accordingly.
Do I Need a Lawyer for My Bankruptcy and Alimony Issue?
If you or your former spouse is planning to file for bankruptcy, you should consider consulting a bankruptcy lawyer. Consulting with an experienced bankrputcy lawyer will help you understand your rights and help you deal with the complicated court system.
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Last Modified: 08-21-2013 10:19 AM PDT
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