Alimony And Support Versus Property Settlements
To be classified as alimony or child support, the obligation must be for actual support or maintenance of a former spouse or a debtors child. Debts or obligations arising from a property settlement agreement are treated differently and can be discharged, but only in a Chapter 13 bankruptcy. So if you owe your ex-spouse a debt because you kept the house or a business and have to pay a portion of that asset to your ex-spouse over time, this amount can be discharged in Chapter 13 bankruptcy. There is a significant amount of complicated case law analyzing whether an obligation is for a property settlement or for maintenance and support and it can be factually intensive depending on the family law proceedings. It is not dependent on the classification of the debt or obligation by either the debtor or the claimant.
What Happens To Personal Assets If You File For Bankruptcy While Getting A Divorce
What happens to unsecured assets in the case of both a bankruptcy and divorce, depends on which process occurs first, and who has rights to the assets at that time.
If bankruptcy first:
If someone files for bankruptcy first, their assets are transferred to their bankruptcy estate and are no longer available for distribution to their ex-spouse.
If separation or divorce first:
If assets are transferred to an ex-spouse as part of as part of the divorce agreement or legal separation agreement before the person files for bankruptcy then those assets are no longer available to creditors in the bankruptcy.
Everything You Need To Know About Filing Bankruptcy After Divorce
Hossein Berenji, Dec 12, 2020
Divorce is a common reason for filing a bankruptcy case. Many people who have gone through a divorce experience financial problems. They may have difficulty paying bills with a single income or have trouble paying bills because of their domestic support obligations.
Regardless of the reason for filing bankruptcy after divorce, it is essential to discuss the bankruptcy filing with your divorce attorney. It is equally important to discuss your divorce with your bankruptcy lawyer. The terms of your divorce could impact your bankruptcy case.
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Clearly Label And Describe Debts
First and foremost is to properly label marital debts and clearly state the intention of the parties or the court. I have seen periodic alimony payments prefaced by n lieu of alimony or support, and as a property settlement in an agreement drafted by an experienced attorney. Please dont do this. If you intend for a debt to be for alimony, support, or maintenance, then clearly label and describe it as such. If you intend for a debt to be a property settlement, then clearly label and describe it as such. Any ambiguity will possibly lead to the Bankruptcy Court having to interpret and determine the type of debt and the intention of the parties.
Additionally, make sure that in any award of attorneys fees it is clearly stated if the award was based on one spouses need and the other spouses ability to pay.
Effect Of Bankruptcy On Divorce Settlements
Lawyers for Alabama Residents Reorganizing Their Finances
It is not uncommon for bankruptcy and divorce to occur around the same time. Economic stress and debt often trigger discussions of divorce. Soon-to-be ex-spouses may be concerned about whether child support or alimony will be paid after bankruptcy is filed. They may be worried about who will pay for joint debts if one spouse files for bankruptcy. One or both spouses may wonder if a divorce settlement is enforceable once one spouse files for bankruptcy, which can have an effect on divorce settlements. At Grainger Legal Services, our Alabama bankruptcy attorneys can counsel people who intend to file before getting a divorce or who have already reached a divorce settlement.
The Effect of Bankruptcy on Divorce Settlements
When you file for bankruptcy, an automatic stay goes into effect and a bankruptcy estate is created. The estate will include all your non-exempt property. The automatic stay does not affect any aspect of your divorce except the division of bankruptcy estate property.
The divorce court cannot divide property that is already in a bankruptcy estate, whether that is the family home or stock or mutual funds. Thus, the division of property can be delayed by filing for bankruptcy, although custody, child support, and other family law issues may move forward. This can cause emotions to run high during the divorce proceedings, and the spouse not filing for bankruptcy may get frustrated.
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Can You File Bankruptcy On Alimony In Arizona
Under Arizona family law, an ex spouse may be awarded alimony . In the understanding of the Judicial Branch of Arizona, alimony offers a safety net for a spouse who cannot provide for their needs. The duration of alimony is determined by the court during the divorce proceedings. In general, judges decide on 1 year of alimony for each 3 years of marriage although this is not a rule. In some instances, alimony may be permanent .
However, although alimony payment is compulsory, some changes to the paying spouses financial situation may affect the amount owed. But what happens if they declare bankruptcy? Will you still get alimony?
Get All The Answers You Need From An Arizona Family Law Attorney
You shared your life with someone as spouses for years, but the marriage broke down. It is a blow to you both emotionally and financially. Your family and friends will provide you with the emotional support you need to find joy in life once again.
And an experienced Arizona family law attorney will make sure that you will not struggle financially. You can rely on the lawyers knowledge of the law to give you the advice you need so you can enforce your alimony decision even if your ex declares bankruptcy. No matter what their life circumstances may be, they still owe you the support the court ordered, especially after having enjoyed your emotional support and household services for decades.
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Support Must Remain Current While Bankruptcy Remains Open
The Bankruptcy Code requires filers to remain current on support obligations while their bankruptcy case remains open.
This does not mean that all back support must be paid up on the date the bankruptcy petition is filed. Current means that, from the date the bankruptcy petition is filed until it is discharged, you cannot get behind on any support obligations. If you are already in arrears on the date you file your bankruptcy petition, you may not get further behind, and you must make all regular child support or spousal support payments due until you receive your bankruptcy discharge. If you are already current on support obligations on the date you file, you may not have any arrearages occur until you receive your bankruptcy discharge.
If you do not remain current on support obligations, you will not receive a discharge of your dischargeable debts and, therefore, you will not benefit from bankruptcy.
What Happens To Spousal And Child Support Payments During Bankruptcy
Under the Bankruptcy & Insolvency Act, bankruptcy will eliminate most of your unsecured debts but will not eliminate spousal support or child support payments.
Spouse paying spousal or child support:
In most cases, if the terms of the divorce or separation agreement agree to give one spouse certain assets in return for continuing to make support payments, and the paying spouse then files for bankruptcy, they will lose the assets. Spousal and child support payments, however, still have to be made.
Spouse receiving support or alimony:
Spouses owed back support payments can make a claim in their ex-spouses bankruptcy and receive a share of any dividend paid from the estate. Any alimony or support arrears for the 12-month period before the date of bankruptcy are considered a preferred claim and are paid out of the proceeds of the bankrupt before any other unsecured claims.
Any support amounts left unpaid are still owed by the paying spouse as those payments survive bankruptcy.
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Student Loans Usually Arent Discharged
Student loan debt in the United States recently topped $1 trillion. This includes private student loans and federal student loans. As millennials are having a hard time find well-paying jobs, interest on their student loans grows at a heart-stopping rate. This causes many young people to start considering bankruptcy before age 40. Unhealthy financial habitstaking out too many student loans, bad money management, and growing credit card debtcontribute to this epidemic.
Unfortunately, filing for bankruptcy isnt an option if you want to discharge your student loan debt. Student loan debt can be discharged in a small number of rare situations. Doing so is very difficult because it requires the petitioner filing for bankruptcy to overcome big hurdles that would convince the court to discharge the student debt. So even if you file for bankruptcy, your student loan debt will most likely stick around.
Can You Stop Paying Bills Before Filing Bankruptcy
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If you plan to file bankruptcy, when should you stop paying your credit cards and other bills? Can you stop paying your creditors before you file bankruptcy, or should you wait until you have signed the paperwork? The answer depends on the type of debt, and when you are planning to file.
The treatment of debts is similar for both bankruptcy or consumer proposal in Canada, so while I mention bankruptcy below, the same principle applies to paying bills before making a proposal to creditors.
Youre struggling with making your debt payments and decide that filing bankruptcy or a consumer proposal is your best option to eliminate your debt. So, the question is, can you stop paying your creditors before you file? Well, the answer largely depends on the type of debt you have and when you might file.
Hi, Im Maureen Parent. A Licensed Insolvency Trustee with Hoyes, Michalos and Associates. A lot of my clients tend to struggle at the end of the month with running out of money because of large debt payments. Filing a bankruptcy or consumer proposal eliminates their large debt payments. But what about the period right before filing? As a rule, you can stop paying creditors who are included in your bankruptcy or proposal shortly before filing.
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Domestic Support Obligations Are Not Dischargeable In Bankruptcy
Filing for bankruptcy doesn’t wipe out all types of debt. Certain debts are considered too important to be discharged in bankruptcy. These are called nondischargeable debts. Domestic support obligations such as alimony and child support are nondischargeable debts that can’t be eliminated by filing for bankruptcy.
To learn more about nondischargeable debts in bankruptcy, see Which Debts Cannot Be Discharged in Chapter 7 Bankruptcy? and Debts That Survive Chapter 13 Bankruptcy.
Bankruptcy Won’t Stop Child Support Payments
Filing for bankruptcy prevents most creditors from collecting debts from you. Once the automatic stay goes into effect, a creditor must get permission from the court before continuing or initiating a collection action. But the automatic stay doesn’t apply to most child support procedures, including:
- legal proceedings to establish or modify a child support order
- collection of child support from property not part of the bankruptcy estate , or
- income withholdings to pay child support under an administrative or court order or statute.
Other types of lawsuits you can’t stop with bankruptcy include criminal actions and suits that should move forward in the interest of justice. For instance, because the bankruptcy court needs a fraud trial judgment before declaring a debt nondischargeable due to fraud, the court would likely allow an ongoing fraud trial to proceed to judgment.
Learn more about when a court will lift the automatic stay.
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General Rule Regarding Alimony In Bankruptcy
The general rule is that an alimony obligation doesn’t just disappear in bankruptcy.
Filing for bankruptcy to avoid an obligation to pay spousal support is a bad idea, because domestic support obligations cannot usually be “discharged” in a bankruptcy proceeding. The general rule is that a debt for a “domestic support obligation” is not dischargeable.
The United States Bankruptcy Code states in Section 523 that discharge under Section 727, 1141, 1228, 1228, or 1328 of this title does not discharge an individual debtor from “domestic support obligations.”
“Domestic support obligation” means a debt that is owed to or recoverable by a spouse, former spouse, or child of the debtor, by the child’s parent, legal guardian, or responsible relative, or by a governmental unit, such as alimony, maintenance, or support under a separation agreement, divorce decree, or property settlement agreement, an order of a court of record, or a determination made by a governmental unit.
How Does Filing For Bankruptcy Affect Your Ex Spouses Credit
Filing for bankruptcy after divorce doesnt affect your ex-spouses credit history and vice versa because each of you have your own credit score. That being said, just because one person files for bankruptcy after divorce it doesnt relieve the other spouse from the debt obligation. Joint debt means just that its joint.
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How Do I Protect Myself If My Spouse Files Or May File For Bankruptcy
The answer to these questions depends on your true financial situation and whether your spouse files before or after the divorce:
- Legitimate Claims for Bankruptcy During Divorce If you and your spouse are truly in financial hot water, then it may be best to put your marital differences aside and consider filing jointly for bankruptcy. Although filing jointly may be a bitter pill to swallow, discharging debts before the divorce is final can simplify the division and distribution of the marital property and debts. It can also avoid possible future liability of having debts assigned to you if your ex-spouse declares bankruptcy after your divorce is final.
What Happens To Joint Debts After Bankruptcy
A joint debt cannot be eliminated by a divorce or separation agreement. That means that, no matter what your divorce or separation agreement says, debts that were owed by both you and your spouse before the divorce, will still be considered joint debts after the divorce. If one spouse files bankruptcy, the creditors can, and will, pursue the ex-spouse for payment of a joint debt regardless of what you agreed to in the divorce.
To eliminate a joint debt, your lender must agree to remove one spouse from any debt they co-signed or guaranteed. This includes joint credit cards.
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
What Happens To Joint Debt If You File For Bankruptcy
Therefore, if one person declares bankruptcy, the other person in the relationship will have to continue making full payments on any joint debt remaining. If you file for bankruptcy to eliminate your debts, your creditors can go after your ex-spouse for the full amount of any joint debts you had while together.
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Types Of Domestic Support Obligations In A Bankruptcy Case
The bankruptcy code defines a domestic support obligation as a debt in the nature of alimony, maintenance, or support owed under a separation agreement, divorce decree, property settlement agreement, a court order, or other determination made under nonbankruptcy law .
Note the hedging language, in the nature of. The bankruptcy code recognizes that the debt may be called one thing, but serve another purpose altogether. We see this often in property settlements that are intended to serve as a stand-in for alimony or spousal maintenance. Therefore, the bankruptcy court will scrutinize rulings from family court judges to determine whether they qualify as a DSO or another type of marital property division .
While banks and other businesses may be able to absorb the losses from these discharged debts, single parents are not usually so flexible. They could be greatly burdened when the child support check is late or when it only covers a portion of the obligation. Families in this situation could end up on public assistance. Society has a high interest, both moral and practical, in ensuring that noncustodial parents make their child support payments as ordered. Therefore, delinquent parents cant just eliminate that obligation by filing a bankruptcy case.