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.  

Cash-less in California: Family law, Divorce and Bankruptcy

Posted by: Gerald A. Maggio, Esq.

divorce lawyers in Orange County; The Maggio LawDivorce can sometimes lead to bankruptcy and make divorce an even harder process. Filing for a bankruptcy can be a tedious task if you do it on your own. Getting a bankruptcy attorney is probably a good idea. During divorce, one of you may not have the means of paying the debts. In such cases, bankruptcy can be used in one’s advantage. Bankruptcy is a means by which you can lower your debts and save yourself from spending more than you want to during a divorce. Additionally, filing for bankruptcy is a good idea if you and your partner don’t want debts after your divorce. In California, bankruptcy is dealt seriously.

Divorce and Bankruptcy in California

In California, you and your partner are equally responsible for every debt accumulated during your marriage. The state is not concerned with who accumulated the debt and to what extent. Being a community property state, this law is strictly followed.

Divorce agreements don’t affect creditors and they expect the debts are jointly owned by both you and your spouse. If one of you fails to pay the debts or abscond from payment, creditors can come after your partner. During your marriage if both of you jointly acquired credit card debts but the court orders only one of you to pay, creditors may still hold your other partner liable.

If you jointly file for bankruptcy before you get divorced, many of the debts can be waived. You and your partner are saved from future debt obligations and the burden is also lessened. Also, the remaining debts decrease.

During divorce proceedings, bankruptcy can be a roadblock. It could become a major reason for fights between you and your partner. So, if you file for bankruptcy before your divorce, it eases the process and avoids problems between the both of you.

Bankruptcy and Divorce costs

If you file for bankruptcy along with your spouse before your divorce, the costs are less. This is because the fees are the same for both individual and joint filings. If you hire a bankruptcy attorney, your fees will be lower.

While hiring a bankruptcy attorney individually, you should be careful because one attorney cannot represent the both of you. And in such cases the fees will also increase.  Bankruptcy and divorce costs differ from state to state and from couple to couple.

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.  

 
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