Filing for bankruptcy in order to avoid alimony is not always the best idea. An obligation to pay spousal support, also considered a domestic support obligation, is almost always not dischargeable. The general rule is that a debt for spousal support, or alimony, cannot be cancelled or forgiven.
What is Alimony?
Alimony is spousal support after a divorce ends a marriage. The support provided through alimony, from one former spouse to the other, is usually temporary. Alimony is often arranged when a marriage involved one spouse making majority or all of the income, while the other spouse took care of the home. The “stay at home” spouse is often the recipient of alimony in a divorce.
Changing Alimony During Bankruptcy
Getting alimony payments adjusted or discharged through bankruptcy is often a daunting undertaking. The supporting spouse should list the supported spouse as a creditor. While it is difficult for alimony to be discharged, there are still a few ways alimony can be changed. If the alimony and the supported spouse are not listed on the bankruptcy petition, alimony discharge becomes nearly impossible. Debt that is not listed in a bankruptcy petition cannot be discharged in bankruptcy court.
Although alimony cannot usually be discharged in bankruptcy, there are two exceptions to this rule.
The first instance that alimony can be discharged in bankruptcy is when the payment of debt is falsely named as being alimony. If a divorce decree states that an obligation to a spouse is alimony, but the obligation is not actually alimony, then the obligation has the potential to be discharged in bankruptcy.
The second instance that alimony could be discharged is if the obligation of debt has been turned over to a third party. For example, two people get divorced and one is obligated to pay the other a certain amount per month. The person in charge of making the payments stop, therefore, the individual relying on those payments must get them from a third party. That third party now owns the right to collect the alimony from the original spouse in charge of the payments. If the spouse in charge of paying alimony files bankruptcy, the alimony obligation can be discharged to the extent it has been legally transferred to the third party.
Bankruptcy can have a huge impact on one’s ability to pay alimony. A major factor the court utilizes in order to determine spousal support payments is the supporting spouse’s ability to pay – considering their earning capacity, actual income, assets, and standard of living.
Alimony is protected from discharge through bankruptcy. Divorce decrees and separation agreements are covered by 11 U.S.C. Section 523(a)(15). This section states that these debts are not dischargeable unless:
(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or
(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.
What does this mean? Fortunately for the dependent spouse, it means that alimony is not wiped out if the supporting spouse declares bankruptcy. Alimony is considered a priority, non-dischargeable debt, which a debtor cannot eliminate by filing for bankruptcy.
Depending on what type of bankruptcy you file, however, may determine whether you are able to enter into a repayment plan for any back-owed alimony. In a Chapter 13 bankruptcy, you may repay your portion of back-owed alimony over a period of three to five years. The dependent spouse will still get the money they are owed, it just may be repaid over a longer period of time. This helps the supporting spouse by giving them a longer period of time to repay their debt so that they may avoid potential jail time.
Occasionally, in separation agreements, the parties agree to label an obligation alimony so that the paying spouse may deduct the payments from his or her taxes. These types of payments are not really alimony and may potentially be discharged through bankruptcy.
If you pay or receive alimony and believe that a potential bankruptcy may impact this, you may want to seek a consultation with an alimony attorney. Adkins Law is located in Huntersville NC and primarily serves Mecklenburg County and the Lake Norman area. Contact Adkins Law to schedule a consultation with a family law attorney.