The court will determine the amount that should be paid to the receiving spouse by examining several different factors. These may include the lifestyle that the receiving spouse is accustomed to or the ability of the receiving spouse to support themselves financially and without the help of the other spouse.
Oftentimes, the spouse who receives the payments is the person who took care of the home while the couple was married.
May a Couple File for Bankruptcy and Divorce at the Same Time?
A couple may file for bankruptcy and divorce at the same time. However, filing for bankruptcy places an automatic stay on collection actions. What this means is that credits will not be allowed to collect or to attempt to collect debts from a debtor while bankruptcy proceedings are occurring. This rule also covers lawsuits as well as other legal actions.
What Happens to Alimony Payments During Bankruptcy?
From the view of the supporting spouse, being able to get spousal support or alimony payments modified or discharged on the basis of bankruptcy can be a challenging task. Section 523(a)(5) of the Bankruptcy Code expressly states that alimony debt and payments are non-dischargeable, which means that they cannot be wiped out due to bankruptcy.
Also, while it is quite difficult to get alimony discharged during bankruptcy, there are still a couple of ways that alimony can be changed. How to modify bankruptcy payments will be discussed in detail further below, but for now, the supporting spouse should note that they must list the supporting spouse as a creditor in order to be considered for a modification or discharge.
If the supported spouse and the alimony payments are not listed on their bankruptcy petition, getting alimony discharged will go from being “very difficult” to “almost impossible.” The reason for this is because bankruptcy courts cannot discharge debt that is not listed in a bankruptcy petition. Thus, when dealing with bankruptcy and alimony, do not forget to list the supporting spouse.
What Counts as Alimony?
In a bankruptcy law setting, only “domestic support” is considered non-dischargeable. As such, payments that are associated with domestic support, but not part of spousal support, can be discharged.
For example, in one case there was an alimony agreement that required a late fee payment be made if the supporting spouse failed to make an alimony payment on time. The bankruptcy court who presided over the case ruled that late fees were designed to encourage the payment of alimony, but the fee itself was not part of the alimony. Thus, it could be discharged.
Can Alimony be Changed During Bankruptcy?
In general, alimony cannot typically be discharged due to a period of bankruptcy. However, there are two primary exceptions.
The first is that alimony debt is dischargeable if it was legally “assigned” or transferred to a third party by the spouse who is receiving support. The second exception is when the portions of the payment are not actual alimony, such as the late fees discussed above.
This scenario does not come up as often. However, there is also an exception where if the supported party intentionally mischaracterized part of the divorce settlement as “alimony” in return for less of the property, then it may count as fraud. In which case, if proved, they may be able to have this amount discharged.
A bankruptcy proceeding may also alter the amount of the alimony payments when it significantly impacts the economic positions of the party.
For example, alimony payments may be decreased when the supported spouse’s division of property debt is discharged in bankruptcy, which forces 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?
If you or your former spouse plan to file for bankruptcy, then you should contact a local bankruptcy lawyer for further legal assistance. An experienced bankruptcy lawyer can help you understand your rights, discuss what the potential outcome may be, and can assist you with navigating the complexities associated with bankruptcy proceedings.