Arizona Bankruptcy and Alimony Payments
How are alimony payments affected by bankruptcy? This is an important question that many people who have gone through a divorce and are currently facing debt issues ask. What are the rules governing Arizona bankruptcy and alimony matters?
What is Alimony and Does the Automatic Bankruptcy Stay Affect it?
Alimony or spousal support is usually awarded in the aftermath of an Arizona divorce. One of the spouses will need to make payments to the other, enabling them to maintain the living standard that they enjoyed during the marriage.
Alimony is usually awarded whenever one partner makes more than the other. Financial situations, however, tend to change. Someone having a high income could potentially accumulate a lot of debt, which will necessitate bankruptcy filing.
Bankruptcy filings put an automatic stay on debt collection efforts. This means that creditors can no longer contact the debtor for the purpose of collecting late payments. Spousal support, however, is not covered by the automatic stay after Arizona bankruptcy and alimony payments to a former spouse will have to continue, even if a person has been approved for a bankruptcy discharge.
Alimony Payments during the Bankruptcy
The US Bankruptcy Code states that both alimony and child support payments are not dischargeable in the case of a bankruptcy.
Domestic support obligations include both the payments and the interest owed to a former spouse for late payments. Thus, bankruptcy filings to get rid of alimony obligations do not make a lot of sense. There are only a few rare exceptions under which spousal support can be discharged in a bankruptcy.
The first exception occurs whenever the financial obligation to a spouse is not actually alimony. The payment of family debt that is specified in the divorce decree as alimony is one example of a situation in which the exception can be employed.
If the alimony obligation has been assigned to a third party, a bankruptcy discharge could also occur. Whenever a former spouse fails collecting alimony payments, they may assign the right to collect to somebody else (like a relative, for example). Said relative will make the payment in return for the assignment. In such situations, alimony payments could potentially be discharged in an Arizona bankruptcy.
Whenever the alimony payment is assigned to a third party, the court could consider it a regular debt. Assistance from an experienced Arizona bankruptcy attorney, however, will be required to eventually enact one of the two not so common alimony payment exceptions.
Spousal Support and Chapter 13 Bankruptcy
The information presented in the above chapters refers to Chapter 7 bankruptcy filings. Chapter 13 bankruptcies are different. They allow for the restructuring of debt and the creation of a repayment plan that the debtor will be comfortable with. Obviously, spousal support payments will be treated differently in a Chapter 13 bankruptcy.
Spousal support payments could be included in the three to five-year payment plan created by the bankruptcy trustee. In order to get a discharge after the completion of the repayment period, the debtor will have to adhere to the plan without being late or missing payments.
Keep in mind there is a difference for ongoing and past-due spousal support. Ongoing alimony has to be paid under Chapter 13 bankruptcies. The collection of past-due support, however, will be discontinued upon the enactment of the Chapter 13 bankruptcy.
If you are behind on the payments (as well as on child support payments), you may want to use the Chapter 13 bankruptcy to regroup and deal with financial issues. This way, you can catch up with old spousal support payments upon the completion of the three to five-year payment plan.
Bankruptcies can be complicated. There are exceptions and special conditions most Arizona residents are unaware of. If you feel overwhelmed, you’re late on debt payment and you struggle under the burden of alimony, talk to a bankruptcy attorney. Your questions will be answered and you’ll find out whether bankruptcy can offer a way out of the current hopeless situation in Arizona bankruptcy and alimony.