Posted by David Falvey on Sunday, July 28th, 2019 - 863 views
One of the biggest challenges of a divorce is having to pay child support or marital alimony. If you’ve found that your payments are too high or that you cannot afford the essentials of living, it would make sense that you would consider declaring bankruptcy.
The general rule is that alimony and child support payments are not dischargeable in bankruptcy. You will continue to have to pay them, and you’ll have to pay back whatever you owe from missed payments.
In fact, there are many types of debts that cannot be discharged in bankruptcy. The US Bankruptcy Code provides that many debts are not dischargeable including debts occurred for breaking the law, debts incurred due to fraud, and debts incurred due to injury or death caused by drunk driving.
Child support, alimony, and spousal maintenance debts are NOT dischargeable in either a Chapter 7 or Chapter 13 bankruptcy. The Bankruptcy Code specifically provides that:
Debts that can’t be discharged include debts “to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) [which refers to child support orders] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree” or other approved orders [source]
In short, this means that if there is an existing divorce or separation agreement, or a current divorce or separation order, any obligations/debts in that agreement/order cannot be discharged.
This obligation includes all forms of spousal support or alimony. Child support obligations also can’t be discharged.
When a husband, wife or parent files for bankruptcy, he/she usually has two types of financial obligations:
With rare exceptions, neither type of debt obligation is dischargeable in either a Chapter 7 or a Chapter 13 bankruptcy.
For most types of collection action, the filing of the bankruptcy petition acts as an automatic stay.
This means bill collectors and creditors must stop all collection actions. The creditors must either get approval from the bankruptcy court to continue their collection efforts or they must file a claim with the bankruptcy court and work with the Trustee who will represent their interests.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 provides that the following matters are not eligible for the bankruptcy stay:
This means that the family court which monitors child support orders and alimony orders will have the authority to proceed with future obligations to pay child support and alimony.
The BAPCPA does not stop payment obligations for alimony payments or child support payments that are in arrears.
There are two possible exceptions to the rule that alimony payments can’t be discharged. There are generally no exceptions to the rule that child support payments can’t be discharged.
While the Chapter 7 bankruptcy does not offer any advantages to the spouse or parent that owes alimony or child support, Chapter 13 may be helpful.
In a Chapter 13 bankruptcy, you can file a repayment plan. The plan requires that you:
If you fail to pay the future alimony and child support payments, you won’t be able to complete their bankruptcy, and won’t have any of your debts discharged.
In this way, a Chapter 13 plan offers the other spouse assurances that these family bills will be paid on time.
The main benefit, if you are the person paying alimony or child support, is that with the approval of the bankruptcy court, you can buy three to five years to pay the arrears.
If there are any disputes in bankruptcy court about alimony and child support, they are normally about whether the three-five year payout plan should be approved.
The new 2018 tax law did change the ability of the payor to take a tax deduction. It also means that the spouse receiving alimony doesn’t have to pay taxes on the alimony received. These tax changes can affect the viability of any Chapter 13 bankruptcy payment plan.
Marital difficulties are a major reason why husbands and wives file for bankruptcy. Sometimes, it is the financial difficulties of a couple that lead them to think about divorce. Sometimes, the reverse is true – couples run into financial difficulties because living separately after a divorce is financially harder than living together. For example, it’s easier paying for one home than for two apartments.
Spouses and parents who file for divorce have some practical choices to make in addition to financial choices. Unlike credit card debt and other types of debt, the spouse or parent filing for divorce does need to have a relationship with the spouse or parent after the divorce – if there are children.
Even if there are no children, you and your spouse need to understand your differences so you start onto building healthy new relationship.