Bankruptcy Questions Answered: How Does Bankruptcy Affect Alimony?

Bankruptcy Questions Answered: How Does Bankruptcy Affect Alimony?

If you find yourself in a position where filing for chapter 7 or chapter 13 bankruptcy is the best way forward, you’re naturally going to be closely assessing your financial situation. As part of your bankruptcy filing process, you’ll work with your bankruptcy attorney and trustee to identify debts and other financial obligations that may be able to be discharged as part of the bankruptcy process. Plenty of clients wonder how a chapter 7 or chapter 13 bankruptcy affects alimony. Here we’ll get into what to expect.

1. What Is Alimony?

Alimony is a payment that a higher-earning spouse pays to a lower-earning spouse as part of a divorce decision, but is not awarded in every case. In marriages where earning power is uneven, alimony can help the lower-earning spouse to more easily adjust to life after marriage and divorce. Also called spousal support, alimony can do just that–support the individual financially, enabling them to spend time job-searching or gaining training or schooling that can allow them to find a job to support themselves. 

Because alimony is a tool to help alleviate immediate financial stress and preserve quality of life, its duration depends on an array of factors. In some cases a spouse may never be able to provide for themselves in the same way that their former spouse did. Alimony can be either durational or permanent, with durational being the most common decision. If the couple cannot come up with an acceptable amount and length of time for their alimony payments, the court will determine what is best.

2. Can Alimony Be Discharged in Bankruptcy?

In general, no, alimony is categorized as a domestic support obligation and thus cannot be discharged in bankruptcy. Along with child support, alimony is held by the government to be socially meaningful, and deemed more important than your ability to find a fresh financial start. It is among several types of debt–along with taxes, government-backed tuition loans, and child support–that are considered priority debts and so are not able to be included in a bankruptcy filing. 

However, since filing for chapter 7 or chapter 13 bankruptcy will help to get your finances in order and get rid of other sources of debt, alimony payments will likely be easier to fulfill. If you are currently past-due on alimony payments, a chapter 13 bankruptcy filing can help you to set up a payment plan for the owed amount. In a chapter 7 case, liquidated assets can help to repay past-due spousal support. This type of debt will always take repayment priority over other debts you need to repay. 

All that said, there are two distinct situations in which payments you’ve been making to an ex-spouse for alimony may qualify for discharge in a bankruptcy filing:

  • A third party is involved: if your ex-spouse signs over the duty of alimony collection to a relative or representative who then disburses payment, there is a chance that this type of financial obligation could be eliminated because it no longer qualifies as alimony
  • A payment is incorrectly classified as alimony: if as part of a divorce decree you are ordered to make payments to a company or other organization affiliated with your ex-spouse and it is listed as being a form of alimony, this type of payment does not fit the definition of alimony and so may be able to be discharged

3. Alimony Payments May Help Your Bankruptcy Case

Though it may not feel as though alimony payments could be beneficial, in one way they may be helpful when determining your available, disposable income. As part of any bankruptcy case, the court will require a means test. This is a way to know how much income you have compared to other households of the same size in your state. Since alimony payments are among the many types of expenses that can be deducted from your total income when evaluating for the means test, this type of debt may actually enable you to file for a chapter 7 instead of a chapter 13 bankruptcy, which could eliminate the need for a repayment plan. Your best bet is to consult with an experienced chapter 7 bankruptcy lawyer to make sure that you’re considering all relevant factors.

4. Can I Modify My Alimony Payments As Part Of A Bankruptcy Filing?

You can’t discharge legitimate alimony payments, but depending on your financial situation, you may qualify to have those payments modified. In order to do this you will need to work with an Ohio bankruptcy lawyer to file a petition for modification of your alimony obligation. These are some situations that may make this a possibility:

  • You unexpectedly lose your job through no fault of your own
  • Your income level has dropped from when the original alimony agreement was drafted
  • Your health has drastically changed, resulting in serious medical bills
  • Your former spouse’s financial situation has greatly improved due to remarriage, employment, inheritance, etc.

Obviously, the change would have to be significant, but if a bankruptcy lawyer feels it is worth pursuing, there is a chance that your altered financial situation could bring about lower alimony payments going forward. If they have become burdensome and are unsustainable based on your current income or circumstances, the court and your bankruptcy lawyer can help.

Filing for Bankruptcy In Ohio? A Bankruptcy Attorney Can Help

When you’re at the point of filing for bankruptcy, you’re clearly dealing with a difficult financial situation. If you're also paying alimony every month, you might wonder how a bankruptcy filing might affect your obligations. It’s good to know that during tough times, you have an advocate. At Hausen Law, we know that if you’ve come to the point of filing for bankruptcy in Ohio, your situation must seem bleak. But don’t worry–with the right team on your side, there’s always a way to make things work. 

Working with an experienced chapter 7 bankruptcy lawyer–like James Hausen and his team–is a great first step. Our Ohio bankruptcy lawyers are ready to help. Just give us a call or fill out our online contact form and we will be in touch. Hausen Law is happy to serve all of Northeast Ohio, including the Akron, Canton, Cleveland, Wooster, Dover/New Philadelphia, and Youngstown communities. Contact us today to set up a free consultation and learn more about alimony and bankruptcy.

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