Can You File Chapter 7 Bankruptcy on Alimony?

Alimony or spousal support is not dischargeable in bankruptcy. Bankruptcy can help you manage overwhelming debt, but it will not erase domestic support obligations. Or, if you receive spousal support, you will not lose it if you file for bankruptcy.

Our attorneys have been handling bankruptcy cases in Southern Maryland for over 30 years. We have seen thousands of cases and can help you find a solution—whether that’s Chapter 7 bankruptcy or something else. While you may not discharge alimony debts in bankruptcy, you are not out of luck if you’re struggling. At your initial consultation, we will provide an honest review of your case and explain your options. If your circumstances are better suited for a spousal support modification, we can help you file that motion. We can also help you if you’re worried about what might happen to the support payments you receive if you file for bankruptcy.

What Happens in Chapter 7 Bankruptcy?

Chapter 7 bankruptcy offers a “fresh start” for individuals and families struggling with debt. The process involves assigning a trustee to liquidate your assets to pay off your debts. During bankruptcy, creditors must halt collection efforts because of the “automatic stay.” A large number of debtors in Chapter 7 do not have any nonexempt assets to liquidate. Thus, the Chapter 7 process usually moves quickly and can close within four to six months. After the liquidation, the court will forgive or “discharge” your eligible debts. Most consumer debts, like credit cards, medical bills, utility bills, overdue rent, and personal loans, can be discharged. However, debts like child support and alimony are excluded from the bankruptcy discharge.

The Effect of Filing Chapter 7 Bankruptcy on Alimony

It’s best to think twice before trying to file Chapter 7 bankruptcy on alimony obligations. Some people think bankruptcy can be a “do-over” for the outcome of their divorce case. However, the bankruptcy court does not have the power to change orders from domestic cases or overturn state court rulings. The court must follow the federal Bankruptcy Code and applicable state laws when handling bankruptcy cases.

In 2005, Congress passed the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The act prioritized domestic support obligations in bankruptcy. This means that you must pay alimony, spousal, and child support debts before any other debts. You must continue paying support as required in your divorce decree during and after bankruptcy.

While many debts can be discharged in bankruptcy, alimony is never dischargeable. Section 523 of the Bankruptcy Code excludes domestic support obligations from the bankruptcy discharge. The term “domestic support obligation” means:

• A debt (and interest) owed to a former spouse; 
• In the nature of alimony, maintenance, or support;
• Established in a separation agreement, divorce decree, or property settlement agreement. 

Even if the words “spousal support” aren’t in your divorce decree, the court may not discharge any payments that function as support. Whether your debt qualifies as a domestic support obligation will depend on the facts of your case.

Additionally, if you fail to continue making support payments, your former spouse is not restrained by the automatic stay. While most collection efforts are stayed during the bankruptcy case, your former spouse can enforce the payments. Filing bankruptcy does not stop a case for divorce or establishment or modification of support orders.

Bankruptcy Alternatives to Adjusting Alimony

If you are struggling to keep up with your alimony payments, bankruptcy can still help. While it won’t erase the obligation, it can discharge many other debts, giving you more money to pay. If your circumstances have materially changed since your divorce decree was issued, you might be able to modify the support order. To do so, you must file a motion, go to court, and explain your circumstances. The evidence must show that making payments at the current amount is unfair. Additionally, the court can terminate support orders if the payments cause a harsh and inequitable result. However, a court can’t change an order if your divorce agreement prohibits modifications.

The Maryland Bankruptcy Alimony Exemption for Chapter 7

If you receive alimony and are filing Chapter 7, a portion of the payment is exempt from liquidation. You must report the payments as income on your bankruptcy petition. However, you can claim them as an exemption. Exempt assets avoid the liquidation process so that you can keep alimony income in bankruptcy.

Maryland law outlines the exemptions available for bankruptcy debtors in the Courts and Judicial Proceedings Article. If you file in Maryland, you must use the state exemptions, not those in the federal Bankruptcy Code. Thus, you can exempt alimony up to 30 times the state minimum hourly wage (currently $12.50). If you also receive child support, you can exempt the entire amount. 

If your ex-spouse is filing for bankruptcy and you believe they are trying to avoid paying child support or alimony, you should consult a lawyer. An experienced family law attorney knows how to protect you and pursue nonpayment action if necessary.

Southern Maryland Law: Helping Families Navigate Domestic Support Obligations and Bankruptcy

The entire family suffers when a person has trouble making alimony or spousal support payments. While you cannot have your alimony payments discharged, bankruptcy can still help. By discharging many consumer debts, bankruptcy can make more money available for your alimony payments. Still, Chapter 7 bankruptcy has serious consequences for your credit. An attorney can tell you if Chapter 7 bankruptcy is your best option. 

Since 1990, the lawyers at Southern Maryland Law have helped families deal with bankruptcy and family law issues. Our team includes family law attorney Nasheia Conway and bankruptcy attorney Dave Gormley. They can help when you’re facing overwhelming debt and struggling with alimony. 

Each attorney offers comprehensive service from the initial consultation to the bankruptcy discharge. We also help our clients change and enforce alimony agreements after a divorce. Our bankruptcy services are available at competitive rates, which we discuss at your initial consultation. When you choose Southern Maryland Law for bankruptcy, we will work to find the best solution for you and your family. Contact us today.