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Bankruptcy Does Not Eliminate Support Obligations

For many facing economic hardship, bankruptcy may seem like an attractive option. Filing for bankruptcy often results in the elimination, or discharge, of a large variety of debts and often represents a second chance for those mired in overdue bills. However, some debts, including alimony and child support, are not discharged in bankruptcy.

Some people find themselves faced with the possibility of bankruptcy as a result of tough decisions and money management choices. Others find themselves in insurmountable debt due to forces beyond their control, like a serious illness, unexpected accident, job loss, or some other crisis. Bankruptcy laws and procedures try to balance the need of debtors for a new beginning with the interests of creditors in recovering their money.

Divorce can often lead to bankruptcy as a person finds him or herself unable to pay their debts or support two households on a single salary. Other spouses may try to avoid alimony and child support obligations by filing for bankruptcy. However, for important policy reasons, filing for bankruptcy will not discharge most domestic support obligations, including alimony.

There are two main types of bankruptcy relevant to this discussion, Chapter 7 and Chapter 13. Under Chapter 7 bankruptcy, debts are discharged; under Chapter 13, debts are only discharged after the debtor has paid a portion of what is owed. When a court orders a discharge, the debt is eliminated and creditors have no legal right to collect against the former debtor. However, neither Chapter 7 nor 13 discharge all debts.

The Federal Bankruptcy Code 11 USC § 523 exempts the discharge of “domestic support obligations” as well as debts owed to a former spouse or child acquired as the result of a court-ordered separation agreement or divorce decree. Moreover, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), effective October 2005, gives domestic support obligations priority over other creditors, including tax debts. Domestic support obligations under BAPCPA include property distribution, alimony, child support, and other court-ordered debt incurred as a result of a divorce and separation. Domestic support obligations are automatically exempted from discharge in bankruptcy.

There are a few requirements for discharge to be exempted from bankruptcy proceedings: (1) the obligation had to have arisen out of a separation agreement, divorce decree or other order by a court, (2) the obligation must be in the nature of support, maintenance or alimony, and (3) if the obligation is to a third party, it must have the effect of supporting the former spouse. This includes paying a mortgage, child education, child medical expenses, and life insurance premiums where the child is a beneficiary.

There are a few differences in the possibility to discharge domestic support obligations between Chapter 7 “liquidation” and Chapter 13 “reorganization” bankruptcy. Under Chapter 7, virtually all obligations assigned under a separation agreement or divorce decree are not dischargeable. This is true whether the obligations take the form of support, property division, or other agreements. Under Chapter 13, a former spouse may not discharge past due support obligations and must pay these obligations in full during the duration of the Chapter 13 plan. The only obligations that may be discharged under Chapter 13 are those deemed not to be in the nature of support. Since most alimony and child support obligations are generally indeed in the nature of support, it is difficult to discharge any of these debts under Chapter 13.

Even though bankruptcy may make financial sense for other reasons, it is very difficult to use bankruptcy to discharge alimony and child support obligations. If a former or soon-to-be former spouse is planning on filing for bankruptcy, it is important to contact an experienced family attorney who will be able to guide you through the process of obtaining relief from a bankruptcy court.

Collins & Collins, P.C.
Albuquerque Attorneys

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