Is your alimony at risk if you file bankruptcy?
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Most concerns about alimony in bankruptcy that we hear from our clients is from the person that's making the support payments. We are asked if they can reduce back balances owed, if they can pay a lower amount or get some of the amount they owe discharged along with their other debts. The answer to these questions is no, no and no. The bankruptcy court can't alter your payments for alimony or child support, nor can they discharge any back balances. You have to go to family court to address these. But recently, we had a client with a different concern. She receives both alimony and child support and is concerned that the Trustee might want to take some of these monies to give to her creditors. Here's a look at what you can expect in a North Carolina bankruptcy with regard to alimony and child support.
Is alimony and child support considered income?
Alimony is treated as income for tax purposes by the person that receives it. For the person that pays the alimony, it is deducted from income. Child support, on the other hand, may not be deducted from the income of the payer and is not income to the parent that receives it. But in North Carolina, both alimony and child support are treated essentially the same for bankruptcy purposes to the extent they are needed for support.
What the law says
US Code Chapter 11, Section 522 reads: “alimony, support, or separate maintenance” are exempt in bankruptcy “to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.” And North Carolina law, in Article 16 Section 1C-1601, confirms this. It reads: “Alimony, support, separate maintenance, and child support payments or funds that have been received or to which the debtor is entitled, to the extent the payments or funds are reasonably necessary for the support of the debtor or any dependent of the debtor.”
How bankruptcy impacts alimony
So long as you're not bringing in significantly more alimony per month than your expenses, you likely won't be impacted. But, if this was the case, you likely would be putting that money toward your bills and wouldn't be filing bankruptcy. If you truly can't afford your bills, even given your alimony, you likely won't face a barrier. However, both alimony and child support must be factored into your income to determine if you must pass the means test for Chapter 7 bankruptcy.
How to prepare for your bankruptcy consultation
Be sure to bring in your divorce papers, custody agreement or other court documents to show how much you're entitled to receive in both alimony and child support. If you are owed a certain amount per month but your ex frequently underpays you, you should include the amount you actually receive rather than what they are obligated to pay. Your reputable North Carolina bankruptcy attorney will walk you through this process to make sure you list the correct amount and that your rights under the law are fully protected.
In most cases, alimony and child support should be safe from creditors so long as the amounts received aren't exorbitant. Contact the law offices of John T Orcutt for more information on how bankruptcy can help you get control of your finances and get the fresh start you deserve.