How Are Alimony Payments Affected by Bankruptcy?

Posted by: Gerald A. Maggio, Esq.

Divorce attorneys in Orange County; The Maggio Law FirmWhat is bankruptcy?

Bankruptcy can put a person in a huge financial predicament and occurs when that person has not been spending his money wisely and his expenditure has exceeded his income. Bankruptcy disallows the person from making necessary or important payments, paying off creditors, getting loans from banks and has a lot of other negative impacts on a person’s financial situation.

If a couple is undergoing a divorce and one spouse is required to make alimony payments to the other spouse and that spouse has filed for bankruptcy, then it can be very difficult for him or her to make the alimony payments. If the spouse is bankrupt, he can use this as a tool to avoid or escape making spousal support payments.

Dischargeable and nondischargeable debts

Bankruptcy disallows a person from discharging his debts. There are certain bills, payments, and expenses that are completely avoidable when a person files for bankruptcy and these are specified in the laws in the state of California. But some debts are nondischargeable which means they cannot be avoided or eliminated just because the person is bankrupt. These include tax payments, loans taken and alimony.

Even though alimony or spousal support and child support are some of the payments that fall under the nondischargeable debt category there are two situations in which alimony payments would be exempted from this category and the spouse would be discharged from making these payments.

U.S. State laws regarding alimony and bankruptcy 

Section 523 of the U.S. Bankruptcy Code clarifies that persons or debtors cannot be discharged from making spousal or child support payments because of bankruptcy. It states that alimony payments are nondischargeable debts under the laws of federal bankruptcy, however, there are two exceptions to this rule:

1.   Involvement of third parties 

If a third party becomes involved in the spousal support arrangements, then the alimony payments become dischargeable even though the spouse is declared bankrupt. If the spouse hands over the burden of alimony payments to a relative in his family, then he is discharged from making the alimony payments himself.

2.  Incorrect divorce documents

When a couple gets divorced the court awards them a divorce decree. This document is one of the most important documents in a divorce and specifies the reasons for the divorce and the terms and conditions of alimony/child support payments. If for any reason there are some mistakes or errors made in the divorce decree with regard to the nature and type of alimony required to be paid, then the spouse who is required to make the payments can be discharged of those debts if he is bankrupt.

Getting divorced in California can be complicated.  Download our free eBook, 18 Important Things to Know About California Divorce to educate yourself on the process.  

Are Credit Ratings Affected by Divorce?

Posted by: Gerald A. Maggio, Esq.

Divorce lawyer Orange County; The Maggio Law FirmJust how much can a divorce affect credit ratings? To most people that haven’t gone through a divorce it doesn’t make much of difference. To them the ads here and there that offer financing help to people who have lost their jobs, had no credit history or have gone through a divorce are wastes of time.

Quite simply put, who can think that a divorce is as bad as having lost your job?  Well, you only get an idea of how bad a divorce is one you have gone through it yourself.

Lack of Money in Real Life

Once you have gone through a divorce, the first thing that would hit you instantly has to run the same household with minimal resources. On top of that if you have a debt you were paying side by side through the course of your marriage, oops, your juggling act just went up a notch or two in difficulty.

If you can’t keep up with that, how will you deal with a situation that may arise with the authorities placing a lien on your vehicle and house for the lack of tax paid on your ex spouse’s business? Now add to that a delinquent credit card debt that the ex didn’t pay. Well thanks to community property laws you are equally responsible for such debts. And in flash, your credit rating which was healthy goes down the drain.

Reality

While these situations may seem too far-fetched to you at the moment, in reality these are all real life happenings that have happened to a number of spouses that have gone through an Orange County divorce. What this highlights is the importance of a proper and truthful disclosure on both sides to make sure neither of the spouses has to face the other’s problems out of nowhere.

How important is a Credit Score for you?

If you ask most people the difference between a credit score and a bowling score, some of them might struggle to answer your question. It doesn’t matter if you don’t know what a credit score is, it will continue to affect a number of things in your life.

Bad credit scores in particular can make life very tough for you, on top of an already difficult Orange County divorce that can be too much to handle. An example of what bad credit ratings can do to you is to look at the example of going to rent a house. If have a bad credit rating, the potential land lord will in most cases turn down your application. This is primarily because a credit score is determined by your past payments, a bad credit score highlights your potential ability to default on rent payments.

For all matters of finance, your credit score is a must, whether it’s getting a credit to buy a car, a home or any other thing. Bad credit ratings can often put a potential lender off.

Bankruptcy and The Effect on Child and Spousal Support

Posted by: Gerald A. Maggio, Esq.

Orange County family lawyers; The Maggio Law FirmOne of the areas of law that has been in the spotlight in recent times is the effect of bankruptcy on the payments of child and spousal support. A large number of people have started to file for bankruptcy in that a declaration of bankruptcy can bring an automatic end to the payment of child and spousal support. This area of law is one that continues to require further elaborations. This blog provides you with details on this aspect of law with respect to bankruptcy and spousal supports and child supports.

The Bankruptcy Code attempts to protect the rights of the former spouses and children, and therefore it states that any support that has been agreed on or ordered by the court is non-dischargeable in the case of bankruptcy.

The spouse that is being given the support needs not have to file any kind of documentation or proof of their claims to be able to enforce their right of continuing to get support. As far as the cases are concerned, once a debtor files for bankruptcy in the court, all the creditors need to stop all collection with respect to the collection of their debts. This is called an automatic stay. An automatic stay means that all kinds of garnishments, creditors, and banks refrain from calling you at all hours of the night.

What if my Alimony Support and Child Support comes from my Spouse’s Paycheck and My Spouse Files for Bankruptcy?

It is true that any child or spousal support orders which depend on the paycheck of a spouse are generally affected by the filing of bankruptcy. This, however, is subject to a few restrictions. In a wide variety of cases, the spouses can rack up a considerable amount of money by nonpayment of spousal support. The courts make sure that this is not the case and will make sure that these arrears are settled before the filing for bankruptcy takes place.

What if I file a Motion for an Increase in Child Support or Spousal Support and My Spouse Files for Bankruptcy?

In the most common circumstances, the courts are not likely to delay the hearing of the spousal support and child support until the case for bankruptcy has been decided. Instead, the bankrupcy will likely only delay the division of assets and debts for at least six months until the bankruptcy is resolved.

 
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