Does Bankruptcy Discharge Alimony Responsibilities?

A bankruptcy filing can provide debt relief, but it is not a magic wand that makes every type of debt disappear forever. Certain types of debts are looked upon as priority debts that cannot be discharged via a bankruptcy filing. If you are required to pay your spouse alimony or child support, this would be a priority debt, and it could not be discharged. You would still be required to make your alimony payments. However, the bankruptcy filing could help if you are finding it difficult to keep your alimony obligation current.

To explain by way of example, let’s say that you are divorced, and you are required to make alimony payments. Over a period of time, you have accumulated a number of credit cards, and the payments are more and more difficult to make. You are also making payments on some large medical bills. These expenses eat up a large chunk of your disposable income, so it is hard for you to keep your other responsibilities current.

Under these circumstances, if your income is less than the median income in your state, you could choose to file for a Chapter 7 bankruptcy. We should point out the fact that it is possible to qualify even if your income is more than the median if you have very little disposable income left after you pay for the basic necessities of life. You get an automatic stay when you file for this type of bankruptcy, so most creditors have to suspend their collection efforts. However, this does not extend to alimony payments.

Your nonexempt property would be liquidated by the trustee to pay back unpaid debts under a Chapter 7, but most people who file have little to no property that is not exempt. Going back to our example, if you don’t have much property that can be liquidated, the credit card debt and medical expenses would be discharged permanently after the bankruptcy became final. Since you would not have to pay these debts anymore, it would be much easier to make your alimony payments on time.

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If you reside in Tacoma, Vancouver, or tri-cities Washington, we have an office near you, and we also have locations throughout the state of Oregon. We offer free bankruptcy case evaluations, and we would be glad to gain an understanding of your situation and make the appropriate recommendations. To schedule an appointment, give us a call at 1-800-682-9568.

What Is a Priority Debt?

If you file for bankruptcy, the different debts that you have are not all created equal in the eyes of the law. Some debts are considered to be priority debts that cannot be discharged through a bankruptcy filing. Let’s look at the details as they apply to the two most common types of bankruptcy that are filed by individuals.

Priority Debt and Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is called a liquidation bankruptcy. Property that you have that is not exempt would become part of your bankruptcy estate. This property would be sold by the trustee, and the proceeds would be used to pay back a portion of your debts. Priority debts would be the first debts that would be paid by the bankruptcy trustee. These would include recent unpaid income taxes, alimony, child support, compensation that you owe to employees, and a handful of other less common types of debt.

Priority debts such as these will never be discharged, even after the bankruptcy is finalized. As a result, the creditors can continue to seek payment if they were not paid in full by the bankruptcy trustee after the liquidation. Plus, property that you acquire after the bankruptcy will not be part of the bankruptcy estate. As a result, priority debt creditors could seek to attach your wages going forward.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a reorganization rather than a liquidation. You present a reorganization repayment plan to the bankruptcy court, and you are given three or five years to complete the plan. Under this type of bankruptcy, you don’t necessarily lose any of your property, and you may not have to pay all your creditors in full. In fact, you may not have to pay some unsecured debts at all.

The priority debts in Chapter 13 are identical to the priority debts that we described above in the Chapter 7 section. These debts must be paid in full over the term of your reorganization plan. Though it is not technically a priority debt, secured claims, like mortgage arrearage that is folded into the repayment plan, must be paid in full as well.

Schedule a Complimentary Case Evaluation

We have offices in Eugene, Grants Pass, Klamath Falls, Tigard, Salem, Portland, and a handful of other cities in Oregon and Washington. If you would like to schedule a free consultation, give us a call at 1-800-682-9568.