Bankruptcy and Alimony: Supporting Spouse’s Perspective

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 What is Alimony?

Alimony, commonly referred to as spousal support, is the financial assistance provided in the form of monthly payments from one spouse to the other following a separation or divorce.

The primary goal of alimony is to maintain a level of financial stability for the receiving spouse, allowing them to transition to a self-supporting life.

Alimony can also be awarded to acknowledge the receiving spouse’s contribution to the marriage, such as if they put their career on hold to raise children or support the other spouse’s career.

Alimony can allow the receiving spouse to pursue education or training that can improve their earning potential and help them become self-supporting in the long term.

In determining the appropriate amount of alimony, the court takes into consideration factors such as the accustomed lifestyle of the receiving spouse, their capacity to become financially independent, and the contributions made by the receiving spouse during the marriage, including homemaking and childcare.

Can a Couple File for Bankruptcy and Divorce Simultaneously?

Although it is possible for a couple to file for both bankruptcy and divorce at the same time, doing so may present challenges.

Filing for bankruptcy results in an automatic stay on debt collection activities, which prevents creditors from collecting or attempting to collect debts during the bankruptcy process. The automatic stay also applies to legal actions such as lawsuits.

However, the automatic stay does not extend to domestic support disputes, which include legal actions related to alimony, divorce, and child custody. This can lead to conflicts between the bankruptcy court and family court, as the family court may still proceed with hearings related to domestic support disputes.

How Do Alimony Payments Change During Bankruptcy?

Altering or discharging alimony payments due to bankruptcy can be a difficult endeavor for the supporting spouse.

According to Section 523(a)(5) of the Bankruptcy Code, alimony debt and payments are considered non-dischargeable, meaning that they cannot be eliminated through bankruptcy.

While discharging alimony during bankruptcy is challenging, there are limited circumstances under which alimony payments may be modified.

To be eligible for modification or discharge, the supporting spouse must list the supported spouse as a creditor in their bankruptcy petition. Failing to do so makes discharging alimony nearly impossible, as bankruptcy courts cannot discharge unlisted debts.

To list alimony payments as a debt in a bankruptcy petition, the supporting spouse must provide the name and contact information of the supported spouse and the amount owed in alimony. This information should be included in the supporting spouse’s bankruptcy schedules, which are filed with the bankruptcy court.

What Qualifies as Alimony in the Context of Bankruptcy?

Within the realm of bankruptcy law, only “domestic support” is deemed non-dischargeable. Consequently, payments related to domestic support but not classified as spousal support can be discharged.

For example, in a case where an alimony agreement stipulated late fees for missed payments, the bankruptcy court ruled that late fees, although intended to encourage timely alimony payments, were not part of the alimony itself and could therefore be discharged.

Other examples include:

  • Child support: While not classified as alimony, child support payments are considered domestic support and are non-dischargeable in bankruptcy.
  • Property settlements: In some cases, a divorce settlement may include a property division agreement that requires one spouse to pay the other a lump sum of money. If this payment is intended to be part of the division of marital property and not classified as spousal support, it may be dischargeable in bankruptcy.
  • Legal fees: If a divorce decree orders one spouse to pay the other’s legal fees, those fees may be considered domestic support and non-dischargeable in bankruptcy. However, if the fees are not specifically designated as domestic support, they may be dischargeable.
  • Medical expenses: In some cases, a divorce settlement may require one spouse to pay the other’s medical expenses. If the medical expenses are not considered part of spousal support, they may be dischargeable in bankruptcy.

Is it Possible to Modify Alimony During Bankruptcy?

Generally, alimony is not dischargeable during bankruptcy, but there are a few exceptions.
One exception is if the alimony debt has been legally assigned or transferred to a third party by the supported spouse.

Another exception arises when certain portions of the payment do not constitute actual alimony, such as the late fees mentioned previously.

A less common exception occurs when the supported spouse intentionally misrepresents a portion of the divorce settlement as alimony in exchange for a smaller share of marital property, which may be deemed fraudulent. In this case, if proven, the misrepresented amount could be discharged.

Here are a few additional exceptions where alimony may be modified during bankruptcy:

  • Change in circumstances: If there has been a significant change in circumstances since the divorce decree was issued, such as a decrease in income or an increase in expenses, the supporting spouse may be able to petition the family court for a modification of alimony payments. However, this typically requires a separate legal proceeding outside of the bankruptcy court.
  • Expiration of alimony: If the alimony payments have a specific end date, such as when the supported spouse remarries or reaches a certain age, the obligation to make payments will end regardless of the bankruptcy proceeding. In this case, the supporting spouse may not need to seek a modification of alimony payments during bankruptcy.
  • Voluntary agreement: If the supported spouse agrees to a modification of alimony payments during the bankruptcy proceeding, the supporting spouse may be able to seek a modification of the alimony obligation. However, any modifications must still comply with state law and be approved by the family court.

Bankruptcy proceedings may also impact the amount of alimony payments if they significantly affect the financial positions of the parties involved.

For example, if the supported spouse’s share of property debt is discharged in bankruptcy, compelling the supporting spouse to take on that debt.

In such a situation, it is clear that the supporting spouse will have to provide increased payments due to the accrued property debt.

Finally, bankruptcy can affect the ability to make payments. This also happens to be one of the major factors the court uses to set spousal support amounts — i.e., the supporting spouse’s ability to make payments. The court will do this by factoring in their earning capacity, their actual income and/or cash flow, the assets they possess, and their standard of living.

Do I Need to Hire a Lawyer for Help with Issues Involving Bankruptcy and Alimony?

In case you or your ex-partner are considering filing for bankruptcy, it’s advisable to get in touch with a bankruptcy attorney in your area for additional legal guidance. With their expertise in bankruptcy law, an adept attorney can clarify your entitlements, explain the possible ramifications, and aid you in maneuvering through the intricate procedures involved in bankruptcy proceedings.

LegalMatch can help you find a qualified attorney in your area who has experience in bankruptcy and family law. You can post your case on our platform and receive responses from interested attorneys who can provide you with legal guidance and representation.

LegalMatch’s platform allows you to review attorney profiles, read client reviews, and compare rates to ensure that you find the right attorney for your needs.

Use LegalMatch to help you find the right attorney to meet your needs and provide peace of mind during this challenging time.

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