Alimony payments can easily become overwhelming, especially if your own financial situation is not very stable after a divorce. If you can't keep up with your court-ordered payments, bankruptcy might seem like a way out of the mess. After all, bankruptcy is designed to reduce or eliminate debt and get you back on track. However, bankruptcy only offers very limited protection from alimony payments.
You'll still be responsible for alimony even if you file bankruptcy unless your ex assigns her alimony rights to a third party.
Alimony Bankruptcy Discharge
There are two different types of bankruptcy: Chapter 7 and Chapter 13. Generally speaking, alimony payments are nondischargeable under either chapter, meaning that they remain in place even if you file for bankruptcy. Alimony and child support obligations are considered priority claims, meaning you may find you owe both of them even if you've filed for bankruptcy.
When you file for bankruptcy, the court orders an automatic stay on any debt-collection attempts. The stay temporarily prevents creditors from contacting you to attempt to enforce the debt. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the stay no longer applies to current alimony or child support payments. However, the stay does apply to past-due alimony payments, so your ex would have to wait to sue you for back alimony until after the end of the stay.
Bankruptcy Protection Exceptions
There are a few instances where alimony may not be protected from your bankruptcy filing. If your ex assigns his alimony rights to a third party, your obligation to the third party may be dischargeable in bankruptcy. For instance, if your ex assigns his alimony rights to a parent, who then agrees to collect alimony payments from you on your ex's behalf and pay him the amount of the alimony every month, the bankruptcy court may allow you to discharge this debt.
Sometimes a divorce decree describes an obligation as alimony even though it isn't a support payment. In a Chapter 7 bankruptcy, this type of alimony remains nondischargeable. In a Chapter 13 bankruptcy, only payments the court considers “in the nature of support” are nondischargeable. For example, if you agreed to pay off one of your ex's credit cards, and the divorce decree describes this as an alimony agreement, the bankruptcy court may decide this debt isn't actually alimony for purposes of bankruptcy law. In a case like this, the debt might be dischargeable.
2018 Tax Changes and Bankruptcy
The 2018 tax law changes will have no direct effect on your bankruptcy and child support or alimony. However, with the tax brackets changing, you may find you have more disposable income with which to repay your alimony. If you end up with a refund, you may find that part or all of that money goes to the estate rather than into your bank account.
Alimony Payments and 2017 Taxes
If you didn't claim any alimony payments you made in 2017 on your taxes, it might be worth going back to take a look. You can amend your tax form for up to three years and get a refund. You don't have to itemize your deductions to claim your alimony payments.
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