How Does Bankruptcy Affect Divorce, Alimony, and Child Support?

Bankruptcy affects divorce because it can reduce assets and debts, but it does not discharge family support obligations like alimony and child support. The effect of bankruptcy on divorce depends on whether you file Chapter 7 or Chapter 13, whether you file jointly, and whether bankruptcy is filed before, during, or after the divorce.

Before filing your bankruptcy petition, make sure you understand how it can impact your divorce and debt relief plan. Contact a local bankruptcy lawyer for legal advice about divorce, child support, and filing for bankruptcy.

Debt Discharge in Chapter 7 and Chapter 13 Bankruptcy

Filing for Chapter 7 bankruptcy involves liquidating your non-exempt assets and distributing the proceeds of the bankruptcy estate to creditors. With Chapter 13 wage-earner bankruptcy, the bankruptcy court approves a repayment plan to repay creditors over time.

The type of bankruptcy filing depends on several factors, including your debts, income, what assets you want to keep, and whether you qualify for bankruptcy. In both types of bankruptcy, remaining unsecured debt is discharged. However, bankruptcy does not discharge all types of debt.

A bankruptcy discharge can eliminate personal liability for dischargeable secured debt, like a mortgage or car loan, but the creditor’s lien generally survives and may be enforced against the collateral. Bankruptcy does not discharge domestic support obligations, and most student loans and many tax debts are also nondischargeable, although some tax debts may be discharged if they meet Bankruptcy Code requirements.

Domestic Support Arrears in Bankruptcy

Chapter 7 and Chapter 13 affect domestic support arrears differently. After a divorce, Chapter 7 bankruptcy does not discharge support obligations or property division.

Chapter 13 reorganization can discharge non-support debts, including financial obligations for property division and “hold-harmless” agreements for joint creditors. However, Chapter 13 bankruptcy can be better for both former spouses when paying off support arrears.

Because domestic support arrears are priority debts, repayment plans can focus on paying a greater portion of the earner’s income for support instead of paying both support and unsecured debts. However, the bankruptcy filer is still responsible for ongoing payments during the repayment period.

Automatic Stays in Bankruptcy

When you file for bankruptcy, it places an automatic stay on collection actions. This can stop foreclosure on a house, lawsuits to recover debts, and liens and levies on accounts and property.

An automatic stay does not apply to child custody determinations, establishing child support obligations, or collecting spousal maintenance.

Bankruptcy does not stop divorce proceedings. However, it can delay property division of shared assets as creditors and the bankruptcy court work to resolve the filing spouse’s obligations.

The bankruptcy court and family court may need to coordinate handling assets under the bankruptcy trustee’s control to ensure the non-debtor spouse is protected.

Bankruptcy Can Impact Division of Assets and Marital Support

If your spouse files for bankruptcy individually, their individual assets and share of marital assets become part of the bankruptcy estate. After liquidation, your spouse may have little to nothing in the form of property or assets, which could reduce your property division share.

A divorce court judge may also award less in spousal support if the obligor spouse has no money or assets.

Child Support Obligations After Bankruptcy

Child support is not discharged in bankruptcy. State and federal bankruptcy laws protect domestic support obligations, including child support and alimony. Even if you file for bankruptcy and discharge all your dischargeable debt, you are still responsible for alimony and child support debts.

Bankruptcy does not discharge ongoing child support payments or past-due child support, whether you file for Chapter 7 or Chapter 13.

For unpaid child support, the court and state agencies can enforce support orders before or after you file for bankruptcy. Your employer must honor an Income Withholding Order from the court and garnish wages according to state law. Wage garnishments are capped based on your disposable income and support obligations.

Does Bankruptcy Discharge Alimony or Spousal Support Debt?

A court can award alimony or spousal support for one spouse to pay the other in a lump sum, over time, until remarriage, or under other terms and conditions. Like child support, spousal support is not discharged in bankruptcy. A former spouse must continue to pay alimony according to the divorce settlement, including any past-due support.

An obligor paying spousal maintenance can file for a modification of the court order for spousal support if there is a significant change in their economic circumstances. Loss of your job, medical emergencies, and other unexpected conditions can justify a reduction in your spousal support amount. However, bankruptcy alone generally does not justify reducing alimony.

Domestic support obligations are priority debts for a Chapter 13 filing. A Chapter 13 plan generally must provide full payment of priority domestic support arrears unless the claim holder agrees to different treatment, and the debtor must also remain current on post-petition domestic support obligations to receive a discharge.

However, if the court and creditors agree to a repayment plan, the debtor can discharge unsecured debt while paying off the required alimony.

Filing for Divorce Before or After Bankruptcy

Financial issues are one of the most common reasons for seeking a divorce. Your current financial situation can affect whether it’s better to file for bankruptcy before or after a divorce. Another factor is whether you should file for joint bankruptcy or only one spouse files.

If one spouse has significantly greater debt, that spouse will generally file for bankruptcy individually. A property division completed before bankruptcy may be reviewed in the bankruptcy case, and a trustee may be able to avoid certain transfers to a non-filing spouse.

If a couple has significant shared debts, a joint bankruptcy may be the best option. A benefit of joint filing for Chapter 7 bankruptcy is that it discharges the debt for both spouses. Joint bankruptcy is generally less costly than separate filings. But to file jointly, the couple must file while still married.

Get Legal Advice for Bankruptcy and Divorce Filings

Divorce and bankruptcy are both stressful events. Before deciding to file for bankruptcy before, during, or after your divorce, consult your bankruptcy and family law attorney.

Contact a local bankruptcy attorney for more information on how bankruptcy can affect your divorce, child support, and alimony obligations.