Keeping Your Spousal Support Order Out Of Bankruptcy Court
In general, domestic support orders like child support and spousal support (alimony) are non-dischargeable debt, meaning a person's responsibility for the debt cannot be wiped out by filing for Chapter 7 or Chapter 13 bankruptcy. However, there are two exceptions when a debtor may be granted approval by the bankruptcy court to discharge spousal support. Here's what you need to know to avoid putting your alimony award at risk of being wiped out by a bankruptcy filing.
Alimony In Lieu of Property
Spousal support that is ordered in lieu of property or other assets can be discharged in a bankruptcy filing. This type of situation occurs when the court decides to order one spouse to pay alimony in exchange for receiving or keeping one or more assets.
For instance, one spouse wants to keep the house but doesn't have the money to pay the other spouse for his or her interest in the property. The court may give the spouse the house but require the person to pay a certain amount of alimony in return. Because this type of alimony isn't actually going towards the support and maintenance of the receiving spouse, the bankruptcy court may treat the support order like regular unsecured dischargeable debt.
When negotiating your divorce, therefore, you should probably avoid this type of arrangement altogether. If you can't, then you should make every effort to indicate the money is for support and maintenance. If you're giving up the family vehicle, for example, stating the asset was something you needed to maintain your lifestyle may go a long way towards establishing the alimony as a support mechanism.
Alimony that is Reassigned to a Third Party
The bankruptcy court may approve your spouse's petition to discharge alimony if he or she is being made to send those payments to a third party. For example, you have your spouse send the monthly payments to your mother because she loaned you $3,000 that you want to pay back. Because your mother is not entitled to the support, he or she is not protected by the bankruptcy court and that $3,000 you reassigned to her becomes eligible for discharge.
To avoid this situation, only have your spouse send payments to you. If you need to have the money sent to a third party, it's important to establish that the person is just an intermediary who is accepting the money on your behalf for a particular reason. For instance, you don't have a bank account and are having your family member cash the checks on your behalf.
The intersection between divorce and bankruptcy is a complex place. Consult with a divorce attorney for assistance with protecting your alimony payments from bankruptcy discharge. One place you can talk to is Law Office of Shelli Wright Johnson.