Bankruptcy and Alimony: Supporting Spouse's Perspective
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What is Alimony?
Alimony is spousal support after a divorce ends a marriage. 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" spouses 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?
From the supporting spouse’s perspective, getting spousal support/alimony payments modified or discharged through bankruptcy can be a formidable task. Section 523(a)(5) of the Bankruptcy Code explicitly states that alimony debt and payments are non-dischargeable.
The supporting spouse should list the supported spouse as a creditor. Although it is difficult for alimony to be discharged during bankruptcy, there are still a few ways alimony can be changed. However, if the alimony and the supported spouse are not listed on the bankruptcy petition, alimony discharge will go from "very difficult" to "almost impossible." Bankruptcy courts cannot discharge debt that is not listed in a bankruptcy petition.
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?
Although alimony cannot typically be discharged during bankruptcy, there are two exceptions.
The first is that alimony debt is dischargeable if it was legally "assigned" or transferred to another person by the supported spouse. The second exception is if the supported party chose to mischaracterize part of the divorce settlement as "alimony" in return for less of the property. A bankrupt spouse may choose to make these arguments in family court.
A bankruptcy may modify alimony payments when it significantly affects the economic positions of the parties. It may decrease alimony where the supported spouse’s property division debt is discharged in bankruptcy, which forces the supporting spouse to take on that debt.
Bankruptcy can affect the ability to pay. A major factor the court uses to set spousal support payments is the supporting spouse's ability to pay—taking into account their earning capacity, actual income/cash flow, assets, and standard of living.
Do I Need a Lawyer for Help with Bankruptcy and Alimony?
If you or your former spouse plan to file for bankruptcy, you should consider consulting a bankruptcy lawyer. Consulting with an experienced bankruptcy 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 10:18 AM PDT
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