Bankruptcy and Spousal Maintenance: What you Need to Know
Filing for bankruptcy is a major decision that significantly affects the financial affairs of the petitioner. Payment plans are drafted, the automatic stay is issued, creditors are informed of the bankruptcy status, and certain debts are eliminated altogether. However, if you are going through a divorce, you may be confused about what will happen to your spousal maintenance payment after you have declared bankruptcy. Will you have to pay your alimony obligation or will it be discharged?
Spousal Maintenance – A Non-Dischargeable Financial Obligation
Bankruptcy is a powerful tool when it comes to discharging debts, though it does have several financial repercussions. Depending on whether you are filing for Chapter 7 or Chapter 13 bankruptcy, several types of debts may be partially or completely eliminated, for example, medical expenses and utility bills.
However, certain types of debts cannot be washed away, and must be paid by the petitioner. They may include several kinds of taxes, student loans, child support, and spousal maintenance.
According to Section 523 of the United States Bankruptcy Code, an individual debtor cannot discharge domestic support obligations. These obligations entail debts that are recoverable by or owed to debtor’s spouse, ex-spouse, or child by the legal guardian, child’s parent, or responsible relative, such as child support and maintenance. Such obligations generally arise from a divorce decree, separation agreement, or property settlement agreement.
Exceptions to the Section 523 Rule
There are two situations where a supporting spouse may be able to discharge spousal maintenance after filing for bankruptcy:
- If it has been specified in a divorce decree that you have an obligation toward your spouse to pay alimony but the obligation is not essentially alimony, then it may be eliminated in bankruptcy. For example, if it has been specified in the divorce decree that the supporting spouse will make payments to ABC company to contribute to a marital debt, and it further states that these payments will be treated as alimony, then such type of obligation can be discharged as it does not fall under domestic support obligations.
- If a third party is involved in alimony arrangements, you can discharge this obligation in bankruptcy. For example, if the receiving spouse assigns a third party like the mother, father, or a relative to collect alimony payments from the supporting spouse, then the alimony obligation may become dischargeable.
Is Filing for Bankruptcy to Escape Alimony a Good Idea?
No, it is never a good idea to file for bankruptcy only for the purpose of avoiding alimony payments. The general rule of Section 523 does not exempt any obligor from paying domestic support obligations, except for the two conditions explained above. It is best that you discuss your situation with your attorney and evaluate if you are struggling with bankruptcy and alimony.
If you’d like to get more information about how filing for bankruptcy may affect spousal maintenance or other domestic support obligations, you should talk to our experienced and knowledgeable Chicago spousal support attorney. Contact the Law Office of Fedor Kozlov, P.C. today at (847) 241-1299 to schedule a free initial consultation and discuss your case.