When you declare bankruptcy, it affects many different aspects of your life. If you are divorced and paying alimony, you need to know how bankruptcy can affect that. Although most people will simply tell you that alimony is not a dischargeable debt in a bankruptcy case, as with so many things, it really depends on a number of factors that must be sorted through before a final determination can be made. This is part of why it is always recommended that you work through a reputable, qualified bankruptcy attorney that can help you understand how the laws apply to your specific situation. Here’s what you need to know about bankruptcy and alimony:
Alimony and other kinds of support obligations (such as child support) are considered priority debts that must be paid. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 strengthened this approach by saying such debts will take priority over all other creditors in terms of payments. Thus, whatever kind of bankruptcy you file, you must continue to make the required alimony payments even after filing. However, there are some rare cases where alimony may be discharged in bankruptcy.
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On such case is where the recipient of alimony has assigned the obligation to a third party. For example, the ex-spouse is not receiving the payments but needs the money. The ex-spouse might ask a relative for the money and then assign that relative the right to collect the money from the non-paying spouse. If the non-paying spouse then files for bankruptcy, the alimony debt may be discharged because it has been assigned to a third party.
Another case where alimony debt may be discharged is when the debt is not really in the nature of alimony. In a divorce proceeding, sometimes what happens is that there is an agreement that one spouse will cover payments on some kind of debt the couple previously held together, and that the payments will be considered part of alimony. The bankruptcy court, however, can choose to decide that it’s not really alimony and have it discharged.
Bankruptcy can also affect alimony in a positive way – if many debts are discharged in the bankruptcy, the debtor may be better able to make the required alimony payments. There is also a chance that when the debtor’s real financial situation is taken into account, the family court may be willing to adjust alimony payments down in order to be more affordable for the debtor.
In a Chapter 7 bankruptcy filing, although alimony is an unsecured debt, it will not be discharged because of its priority status. In a Chapter 13 bankruptcy, however, things are different, because the goal is to come up with a payment plan over 3-5 years to pay down most debts and discharge the rest. In this case, if the debtor owes unpaid alimony to an ex-spouse, it will be included in the repayment plan in order to catch up on payments, all the while continuing to make current payments as well. The “automatic stay” that stops creditors from trying to collect on debts does prevent an ex-spouse from trying to collect back alimony, but only for the period of the stay.
If you’re filing for bankruptcy and you also pay alimony to an ex-spouse, above all else stay up to date with your payments, otherwise you risk jeopardizing your bankruptcy filing and the fresh start you’re seeking.
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