Alimony, Child Support and Bankruptcy

After a divorce or child custody battle, the loss of a second income and increased personal and legal expenses can sometimes send you into bankruptcy. In other cases, domestic support obligations can linger years after changes to your employment or financial situation leave you unable to pay what’s owed. When that happens, you need to understand how alimony, child support and bankruptcy interact, and will or will not be affected if you file for bankruptcy.

Can You Use Bankruptcy to Avoid Obligations Imposed by a Divorce Judgment?

Filing for bankruptcy as a way to avoid divorce support obligations is a bad idea. Federal bankruptcy law says that “domestic support obligations” are generally not dischargeable in bankruptcy. This includes alimony or spousal support, child support or maintenance orders entered as part of a separation agreement, divorce decree, or court order. Domestic support obligations include debts (including interest) owed to or recoverable by a person’s:

• Spouse
• Ex-spouse
• Child
• Child’s parent (co-parent)
• Legal guardian
• Responsible relative
• Government unit (such as recouping for government-provided health insurance coverage)

Under a separate section of the bankruptcy code, debts incurred in the course of a divorce, or as part of a separation agreement are not dischargeable. This means, for example, that a debtor cannot agree to take on debts as part of a divorce proceeding and then simply file for bankruptcy to avoid paying those debts. This section protects ex-spouses from facing collections efforts even after a debt is assigned to the other party in the divorce. Similarly, other obligations to the ex-spouse that are incident to or contained in the divorce judgment are also non-dischargeable, such as, for example, an obligation to transfer property or a financial account to the ex.

Domestic Support Obligations Assigned to Third Parties

There is an exception to the rules around alimony and bankruptcy when third parties get involved. In rare cases, the person receiving spousal support (the payee) may assign their right to collect alimony payments to a third party, including as collateral on a debt. Because the funds are no longer going to the support of the spouse, those obligations can be discharged to the extent they were assigned to a third party.

Does Bankruptcy Affect Future Child Support Payments?

Filing for bankruptcy does not affect your obligation to pay future child support payments or alimony payments. If the Connecticut family court (or another court) has issued an Income Withholding Order, that order will continue even after the bankruptcy is filed and the automatic stay goes into effect. You will be expected to maintain ongoing child support and alimony payments throughout the bankruptcy process. This is not necessarily a bad thing. Unpaid child support or alimony “arrears” are considered “priority debt” that must be paid before unsecured creditors receive any payments toward their balances.

However, a pending bankruptcy can sometimes limit your ability to modify your obligations, since the stay can prevent domestic cases from going forward. If you owe child support or alimony and are considering bankruptcy, it is a good idea to speak with an attorney who handles both divorce and bankruptcy. This can allow you to modify your child support and alimony obligations first, and then use the resulting order to offset other dischargeable debts.

Coordinating Bankruptcy and Divorce Proceedings

If you or your spouse wants a divorce and you think a bankruptcy may be in your future, it is wise to talk to an attorney with experience in both arenas before filing either case. The interactions of bankruptcy and divorce law are many and complex. You may be able to make strategic decisions about when and how to file both cases that will maximize your ability to discharge debts while also streamlining your divorce negotiations. This is especially important when one household becomes two and you and your spouse must pay more living expenses with less income at your disposal. Although not the first alternative, bankruptcy filing by one or both parties can eliminate marital debt and make that challenge more realistic.

Filing an individual or joint bankruptcy before pursuing a divorce can be a good way for both spouses to start the next chapter of their life with fewer financial concerns. Because a bankruptcy can discharge credit card debt, medical bills, and other unsecured debts, you can remove that “red ink” from the marital estate’s ledger, making it easier to negotiate a property settlement both spouses can agree to. Using bankruptcy as a divorce planning technique can make resolving your marriage easier, and increase the chances that you never have to go to trial to divide up marital assets and debts.

At Lawrence & Jurkiewicz, we can help you sort through the laws related to alimony, child support and bankruptcy, to see if filing for bankruptcy can help you pay off your court-ordered debts. We will meet with you to review your financial circumstances and help you decide whether to file a Chapter 7 bankruptcy, or create a Chapter 13 repayment plan, or seek modification of your existing spousal support and child support orders. We want to help you make the right decisions for you and your family. Please call (860) 264-1551 or contact us for a consultation.