Alimony and Bankruptcy: Four Things You Need to Know

Alimony and Bankruptcy: Four Things You Need to Know
Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.

Information in this article does constitute legal advice, is for informational purposes only and may not constitute the most up-to-date information. Readers should contact their attorney for advice to any particular legal matter.

Divorce can be financially devastating for one or both spouses, and it's a common reason why people file for bankruptcy relief. Going from a two-income household to a one-income household can make it difficult to pay bills and cover living expenses. Even if you receive support payments, it might not be enough to make ends meet. To make matters worse, navigating the intersection of alimony and bankruptcy can be confusing. To protect your rights and get the best possible outcome, it's essential to seek legal advice from a qualified bankruptcy lawyer.

Four Alimony and Bankruptcy Facts You Need to Know

Are you currently paying or receiving alimony? If so, it's important to understand how alimony and bankruptcy filings intersect. Here are four key facts you should know:

Firstly, filing for bankruptcy does not automatically eliminate your obligation to pay alimony. While bankruptcy can discharge many types of debts, alimony is typically not one of them.

Secondly, if you are receiving alimony and file for bankruptcy, your alimony payments may be protected under the bankruptcy code. This means that your ex-spouse will still be required to make those payments even if they are struggling financially.

Thirdly, if you are paying alimony and file for bankruptcy, you may be able to modify your alimony payments. This will depend on the type of bankruptcy you file and the specifics of your case.

Finally, it's important to note that any missed alimony payments are not dischargeable in bankruptcy. This means that if you owe back payments, you will still be responsible for paying them even after your bankruptcy case is closed.

1. Are Alimony and Spousal Support the Same Thing in Bankruptcy?

When it comes to support payments between ex-spouses, some states still use the term “alimony,” but many have moved towards using “domestic support” instead. This is because the term “alimony” is often associated with a husband making payments to an ex-wife. However, both terms refer to the same thing: domestic support obligation.

Under the U.S. Bankruptcy Code, domestic support is defined as a debt owed to or recoverable by a spouse, ex-spouse, debtor’s child or the child’s parent, legal guardian, or responsible relative, or governmental unit. The debt is considered to be for alimony, maintenance, or support assistance.

During the 341 Hearing in court, the Chapter 7 and Chapter 13 trustee will ask if the debtor owes any domestic support obligations. If the answer is yes, the trustee will verify the information and the statute of payments.

2. Alimony Is Income for the Bankruptcy Means Test

When you file for bankruptcy, you'll need to complete a Bankruptcy Means Test. This test serves multiple purposes.

If you're filing for Chapter 7 bankruptcy, the means test will compare your gross average income to the median income for your state of filing. If your income is lower than the state median income, you should qualify for a bankruptcy discharge. However, if you earn more money than the state median income level, you'll have to complete a second test to calculate your disposable income to ensure you qualify for a Chapter 7 bankruptcy discharge.

Meanwhile, the means test for a Chapter 13 case determines whether you must file a 60-month Chapter 13 plan. It also calculates your disposable income, which means you must pay at least the amount of your disposable income to your unsecured creditors for the duration of your Chapter 13 plan.

Most income is used to calculate gross income for the means test. However, Social Security Income and a few other benefits are excluded from the means test.

3. Alimony Counts as Income for the Receiver

If you receive alimony payments, it's important to know that they count as income on both the Chapter 7 and Chapter 13 means tests. This means that if your income plus the alimony you receive increases above the state median level, you could "fail" the means test.

However, there's still a chance to "pass" the test if your allowable monthly expenses decrease your disposable income below a specific amount. Disposable income is the amount of money you have each month after paying for necessary living expenses like utilities, food, clothing, shelter, transportation, medication, insurance, and car payments.

While receiving alimony payments may affect your means test results, it's important to remember that the means test is just one factor in determining your eligibility for bankruptcy. Consulting with a bankruptcy attorney can help you understand your options and make the best decision for your financial situation.

4. Alimony Counts as a Deduction for the Payer

If you're paying court-ordered alimony to your ex-spouse, did you know that you can deduct it from your gross income on the means test? This deduction could potentially help you qualify for a bankruptcy discharge in Chapter 7. Even in a Chapter 13 case, paying alimony to an ex-spouse can still be beneficial. It lowers your disposable income, which in turn decreases the amount you'll need to pay to unsecured creditors. So, if you're struggling with debt and paying alimony, remember that this deduction can make a difference in your bankruptcy case.

Alimony Cannot Be Discharged Under a Chapter 7 Case

If you're facing bankruptcy and have past-due alimony payments, it's important to know that bankruptcy won't discharge your domestic support obligations. This includes payments for alimony or spousal support. Unfortunately, if you owe past-due alimony payments, you'll still have to face penalties from the family court.

It's worth noting that many states have strict measures in place to ensure that past-due alimony payments are paid. This can include seizing state income tax refunds, garnishing wages, suspending driver's licenses, and even ordering other penalties for non-payment of alimony. So, if you're in this situation, it's important to work with your family court and bankruptcy attorney to find a solution that works for you.

Filing Chapter 13 Can Help with Past Due Alimony Payments

Did you know that filing for bankruptcy does not discharge your alimony or spousal support payments? But don't worry, you can still pay off any past-due payments through a Chapter 13 plan. This means you can include your arrearage in your Chapter 13 plan payment, which will be paid in full to your ex-spouse.

It's important to note that if you file for Chapter 13, you must immediately start making regular alimony payments to your spouse to keep your case active. Falling behind on any future payments could result in the dismissal of your bankruptcy case.

On the bright side, filing for Chapter 13 can help you avoid court sanctions for falling behind on spousal support payments, as long as you stay current with future payments. So, if you're struggling to make your payments, consider filing for Chapter 13 to get back on track.

Contact Us for More Information

At Ascend, we understand that being in debt can be overwhelming. That's why we're committed to helping you explore your debt-relief options easily and for free. Our bankruptcy calculators can help you determine whether you qualify for Chapter 7 or Chapter 13 bankruptcy. But that's not all. Our team can also guide you through other debt elimination methods, such as debt payoff planning and debt management.

We're dedicated to your financial wellbeing and providing you with the resources you need to get out of debt quickly. Our services are free, and we're always here to help. Contact us online or give us a call.

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