Can Alimony Recipients File Bankruptcy?

by Beverly Bird
If you have to file for bankruptcy, the court will consider alimony you receive.

If you have to file for bankruptcy, the court will consider alimony you receive.

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Alimony is income -- it's money that comes into your household to help you meet your expenses. If your overall income is insufficient to pay your debts, and you're thinking of filing for bankruptcy, you must account for the amount of alimony, and it can be pivotal to which bankruptcy proceeding you're permitted to file.

Chapter 7 Liquidation

Chapter 7 is a liquidation process. The bankruptcy trustee takes control of your assets, sells them, and then gives the proceeds to your creditors. If this doesn't pay off all your debts, the balance of what you owe is discharged. You must qualify for this type of relief by passing a financial means test, which establishes that you don't have enough money left to satisfy your debts, after you pay your necessary monthly expenses. You must add your alimony to your earned income, and if this means that you have sufficient money left over after expenses to pay your creditors something, you'll have to file for Chapter 13, instead.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves a repayment plan. The court tallies up all the income you receive each month, and then subtracts your necessary living expenses. The balance is your disposable income, and you must turn this over to the trustee, who then gives this money to your creditors. You must include both alimony and child support as sources of income when you file a Chapter 13 petition, but child support is deducted and not legally available to your creditors, because it's for your children. However, you must use your alimony income to fund your Chapter 13 plan.