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Bankruptcy represents the turning of the page from one chapter of life to the next. The transition has the potential to dramatically change one’s life. However, most are unaware as to how declaring bankruptcy changes (or does not change) child support and alimony.
Our Massachusetts bankruptcy attorney is here to help you make a seamless transition while ensuring you remain in full compliance with family court requirements.
The Financial Fallout of Bankruptcy
Bankruptcy law separates debt into specific classes. Certain financial obligations held by the debtor are prioritized over others. In particular, alimony to a previous spouse and child support are considered high-priority debts. The legal system of the United States has recognized the importance of such familial financial obligations, as it would be unfair to penalize kids and financially dependent ex-spouses.
If child support and alimony were allowed to be discharged in bankruptcy, the declaration of financial destitution would devastate the debtor’s children and previous spouse. Though some creditors might not be paid in full or at all, the courts ensure minor dependents and even some ex-spouses receive their much-needed financial support.
Child Support and Alimony in Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
The Chapter 7 version of bankruptcy, commonly referred to as liquidation bankruptcy, empowers people to discharge a wide array of unsecured debts. The exceptions to those debts include ex-spouse alimony and child support. The debtor’s financial obligations to his or her kids and previous spouse remain intact. It is even possible to use the proceeds from one’s assets that are liquidated when declaring Chapter 7 bankruptcy to pay outstanding alimony and child support debts.
In contrast, Chapter 13 bankruptcy, also referred to as the wage earner plan restructures the debtor’s debts for a reasonable payment plan. The payment plan typically spans 3-5 years. Though Chapter 13 bankruptcy does not discharge one’s alimony or child support obligations, it provides an overarching financial payment plan for that debtor to make good on missed payments and underpayments.
Furthermore, Chapter 13 bankruptcy cannot be completed unless the debtor maintains his or her alimony and child support payments. If one’s financial obligations to children and ex-spouses are not met, the bankruptcy process will be put in jeopardy.
What About the Automatic Stay of Bankruptcy?
Do your due diligence on the bankruptcy process, and you’ll stumble on the term of automatic stay. Filing bankruptcy leads to an automatic stay that temporarily pauses collections efforts. However, the automatic stay is inapplicable to alimony and child support.
The debtor’s income withholding for both alimony and child support remains in effect throughout the automatic stay and overarching bankruptcy process. The failure to comply with family court rulings that dictate specific amounts of money to be paid in alimony and child support can lead to contempt of court.
Learn More During a Consultation With Our MA Bankruptcy Attorneys
Bankruptcy is a significant life event that requires oversight from an experienced attorney. If you are considering bankruptcy or have started the process, lean on our legal team for guidance. Reach out to us today to schedule a consultation.