Alimony and Bankruptcy Issues

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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” (cancelled or forgiven) in a bankruptcy proceeding. The general rule is that a debt for a “domestic support obligation” is not dischargeable.

The United States Bankruptcy Code (Title 11 of the United States Code) states in Section 523 that [a] discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from “domestic support obligations.”

“Domestic support obligation” means a debt (including interest) 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 (including assistance provided by a governmental unit) 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.

Exceptions to the general rule

There are two instances where an obligor can discharge alimony in bankruptcy.

First, if a divorce decree specifies that an obligation to a spouse is alimony, but the obligation is not actually alimony, then the obligation can be discharged in bankruptcy. For example, if the divorce decree states that the husband is to pay a marital debt to XYZ Corporation, and further specifies that the husband's payment of the debt shall be treated as “alimony,” the husband may be able to discharge that “non-alimony” debt in bankruptcy, even though the divorce decree (wrongly) calls his payment of the debt “alimony.”

Second, in certain instances, an ex-spouse may be able to discharge an alimony obligation if the obligation has been assigned to a third party. For example, suppose John and Mary Doe divorce. John is ordered to pay Mary alimony of $500.00 per month. John does not pay the alimony and Mary, who needs the money, assigns the right to collect alimony to her father, who gives Mary the $500.00 per month in return for the assignment. Mary's father now owns the right to collect the alimony from John. If John files bankruptcy, the alimony obligation can be discharged to the extent it has been assigned to Mary's father.

Resources

11 U.S.C., §523(a)(5)

11 U.S.C., §101(14A)

Updated by: , Attorney

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