Can You Escape Alimony Using Bankruptcy?

After the emotional and financial turmoil of going through a divorce, there is nothing more frightening than being faced with the possibility that your ex-spouse may be able to avoid his or her financial responsibilities to you by seeking bankruptcy relief. The good news is that, for the most part, this will not be true. However, there are some exceptions to this general rule.

There Is Good News

Regardless of whether your ex-spouse files a Chapter 7 or Chapter 13 bankruptcy petition, he or she will be unable to discharge (or get rid of) any obligation to you to pay a domestic support obligation and this will include alimony or child support. Under the 2005 amendments to the bankruptcy code, Congress declared any obligation that is in the nature of alimony, maintenance and support to be nondischargeable in a Chapter 7 or Chapter 13. Congress defined a domestic support obligation as any debt arising before, during, or after the filing of a bankruptcy petition, owed to a spouse, former spouse or child, that is in the nature of alimony, maintenance or support and has been established by a legally binding agreement or court order such as a divorce decree. If a debt is labeled as alimony or child support in a divorce decree or other court order, there is no question that the debtor will have to continue to pay this financial responsibility.

Then, What Debts Are Dischargable?

There can be other obligations such as the requirement to pay the monthly mortgage payment or car payment required by a court order where a question of dischargeability can arise. The answer of whether this financial obligation was intended to be in the nature of alimony, maintenance or support is critical in making the debt nondischargeable.

What is trickier is the question of whether the obligation under a divorce decree to pay things other than alimony or child support is dischargeable. These are commonly described as property settlement issues. One example would include an order to pay a third party for a debt that arose during the marriage such as a credit card debt in the joint names of the husband and wife. If the obligation to pay the credit card arises from a divorce decree or separation agreement, then the obligation will not be dischargeable in a Chapter 7. It may, however, still be dischargeable in a Chapter 13 pursuant to the super discharge afforded to debtors who file under that chapter of the bankruptcy code.

Other protections afforded to a spouse or child by the bankruptcy code include the requirement that each alimony or child support payment that falls due after the filing of a Chapter 13 bankruptcy petition must be paid or the debtor will be denied an overall discharge in the case. Arrearage claims for alimony or child support must be paid in full by the debtor in a Chapter 13 case unless the creditor spouse agrees otherwise. Finally, the bankruptcy court can refuse to approve a Chapter 13 plan if the debtor is not current on domestic support obligations.

 

Our bankruptcy attorneys have practiced in this area of law for several years. Please feel free to contact your nearest Bond & Botes office for a free consultation so that we may be of assistance to you.