From a legal perspective, bankruptcy laws consider alimony or spousal support as a debt. The bankruptcy court will rely on the ruling of the family court judge when it comes to determining if the alimony debt is eligible for being discharged by the bankruptcy proceeding. After a review of your debts, your bankruptcy lawyer can tell you which are eligible for discharge. Commonly this will be personal loans, credit card debts, and medical bills.
Because alimony is intended to help the former spouse pay their bills and meet the financial demands of their life, a bankruptcy judge is not likely to discharge the money owed to the former spouse unless certain criteria are met, which a divorce lawyer, such as from The McKinney Law Group, can explain. Some forms of spousal support are more likely to be discharged than others. For instance, the division of property, even if it is labeled spousal support or alimony, is more apt to be discharged than cash payments of alimony. If the spouse who receives the payments is obligated to pay taxes on those payments, or if there are children who depend on the support payments, then they will not likely be eligible for discharge in a bankruptcy.
Property Settlements
When a couple divides their assets during a divorce, this process also includes the division of debts. Generally speaking, a property settlement is not dischargeable in a Chapter 7 bankruptcy. However, in a Chapter 13 bankruptcy, there are two types of debt division that can be discharged. They are: cash in lieu of assets, and hold harmless agreements. Your bankruptcy lawyer can confirm if any of your assets or property settlements can be discharged during which types of bankruptcy.
Chapter 13 Bankruptcy
Though some divorce related debts such as support cannot be discharged in a Chapter 7 bankruptcy, a Chapter 13 bankruptcy can be more flexible in terms of what can be discharged. Alimony obligations are prioritized in the individual’s debt reorganization, more so than medical bills and credit card debt. The goal is to ensure that they can pay their most important obligations, and that includes alimony so that those who are dependent on it in order to meet their daily financial needs. Your bankruptcy lawyer can help you develop a payment plan for your alimony obligation that will satisfy court ordered requirements.
Once you and your bankruptcy lawyer develops a payment strategy for your alimony obligations, the court must approve it. As long as you maintain the new payment arrangement and pay your alimony on time and in full as per that agreement, your lawyer may confirm that the alimony creditor cannot take action against you.
Filing for bankruptcy is a big step and should not be taken lightly. It is also a complex process that for most people requires the assistance of a bankruptcy lawyer. If alimony is an aspect of your debt structure, then it is important to have a full understanding of what you can and cannot do in the context of discharging your debts. Contact a bankruptcy lawyer to learn more.