When a married couple files for divorce, the spouse who is in better financial shape will usually be required to pay monthly installments to the spouse who is in worse financial condition. These monthly installments are known as alimony or spousal support payments.
Spousal support is meant to give the receiving spouse additional time to find a way to support themselves. Thus, once a receiving spouse can be declared financially independent, the supporting spouse may petition the court to have these payments terminated. While a court will likely approve this petition if it finds that the receiving spouse is in fact able to support themselves, it will largely depend on the facts that are unique to an individual case.
This arrangement becomes a lot more complicated if the supporting spouse files for bankruptcy. Filing for bankruptcy will not discharge or cancel the court-ordered spousal support payments. However, being declared bankrupt can help to reduce the amount of money that the supporting spouse is required to pay each month.
As such, the receiving spouse will need to find ways to protect themselves and their rights to ensure they will be able to continue collecting these payments. To learn more about how bankruptcy may affect your rights as a receiving spouse, you should speak to a local family lawyer as soon as possible for further legal advice.
What Is Bankruptcy?
Bankruptcy is generally defined as a legal process that assists persons and/or businesses in restructuring and eliminating their outstanding debts. Bankruptcy cases are governed by federal law and thus must be filed in a special federal district court known as a federal bankruptcy court. Such matters are also primarily governed by a federal law called the U.S. Bankruptcy Code.
One of the goals that debtors hope to achieve when filing for bankruptcy is that it will allow them to protect some of their assets from creditors, while simultaneously permitting them to adopt a payment schedule that will allow them to pay off their debts over a longer period of time. It should be noted, however, that this option is not available to debtors who file for certain chapters of bankruptcy.
The most common chapters of bankruptcy that persons and/or businesses usually file a petition for are Chapter 7, Chapter 11, and Chapter 13. Each chapter of bankruptcy will have its own rules and procedures to complete the bankruptcy process, as well as their own advantages and disadvantages. Individuals tend to file for either Chapter 7 or Chapter 13 bankruptcy, whereas businesses usually file for Chapter 11 bankruptcy.
Does Bankruptcy Discharge Spousal Support Debt?
While bankruptcy may affect the amount of spousal support that a supporting spouse has to pay, filing for bankruptcy alone cannot discharge spousal support debt. This is because spousal support is one of the types of debts that may not be discharged under the U.S. Bankruptcy Code. In fact, the U.S. Bankruptcy Code explicitly states that some obligations, such as alimony, child support, and student loan debt cannot be discharged in bankruptcy.
Accordingly, the supporting spouse will still be required to pay off spousal support debt. Filing for bankruptcy will not eliminate this kind of debt.
Can the Amount of Spousal Support Be Changed During Bankruptcy?
There are two scenarios wherein the bankruptcy court may modify the amount of alimony that is paid to the receiving spouse during the bankruptcy process. The first is if the supporting spouse has filed a petition for Chapter 13 bankruptcy. In this instance, the debtor can request to have the amount of spousal support they pay modified and approved by the bankruptcy court.
The second situation may arise when a receiving spouse assigns their right to receive spousal support to a third party, such as a bank or other lending institution. If the receiving spouse chooses to reassign this right to another party, then the requirement to pay alimony can be discharged since it will no longer be considered as spousal support payments under the law.
Additionally, the amount that a supporting spouse is ordered to pay the receiving spouse will also be contingent on how much they can reasonably afford to pay under the circumstances. Thus, since bankruptcy will affect the supporting spouse’s ability to pay alimony, then this might be a major factor in the court’s decision in determining how much the supporting spouse will need to pay in alimony each month.
Can the Receiving Spouse Protect Their Right to Support During a Bankruptcy?
When a supporting spouse files for bankruptcy, there are some procedures available that the receiving spouse can take in order to protect their right to collect alimony. The best way to ensure that a receiving spouse’s rights are protected is for them to declare themselves a creditor in the supporting spouse’s bankruptcy case.
The receiving spouse can accomplish this in one of three ways:
- First, the receiving spouse may file a written notice of appearance with the bankruptcy court that is in charge of overseeing their supporting spouse’s bankruptcy case.
- Second, the receiving spouse may choose to file a proof of claim instead during the asset allocation stage of the supporting spouse’s bankruptcy case. In general, the asset stage of a bankruptcy case entails distributing funds to creditors to reduce the amount of debt still owed by the debtor.
- Third, there are some cases in which the receiving spouse can be added as a creditor to the bankruptcy case by the supporting spouse. The supporting spouse will need to include this addition before they file their bankruptcy petition with the court. This can eliminate the extra steps that the receiving spouse would need to take if they had to do it themselves. It would also save the parties time and money.
Once a receiving spouse is formally recognized as a creditor, then they will be allowed to attend the 341 meeting of the creditors. This is where the parties will meet the trustee appointed to oversee the bankruptcy case.
Therefore, it is important for the receiving spouse to attend this meeting because it will help ensure that the trustee is aware of the type of creditor that the receiving spouse is, meaning that their rights will be protected since the trustee cannot discharge alimony debt.
Do I Need an Attorney for My Bankruptcy and Spousal Support Issues?
Cases involving spousal support and bankruptcy issues can be extremely difficult to resolve without the help of a legal professional. This is because there are several different areas of law that can affect this type of case and not all of them will be so straightforward. For instance, bankruptcy matters often require consulting someone who understands the complexities of such laws.
Bankruptcy and spousal support issues also happen to affect two major areas of an individual’s personal life and thus can feel overwhelming when both issues occur simultaneously.
Therefore, if you or your spouse intend to file for bankruptcy amidst having spousal support issues, then it may be in your best interest to hire a local family lawyer immediately for further legal guidance. An experienced family lawyer can advise you of your rights under the law and can recommend various options of legal recourse that may be available to you.
Your lawyer can also assist you in drafting any necessary legal documents and can help you file a claim against your spouse. Additionally, your lawyer will be able to provide legal representation in court or at the negotiation table.
