Although bankruptcy can provide you with a fresh start, not all debts are dischargeable. Past-due alimony, or spousal support, is one type of nondischargeable debt. Because this special type of debt doesn't get wiped out, your spouse can still sue you after the bankruptcy is over, and she may sue you while it's going on.
The Automatic Stay
When a debtor files bankruptcy, an automatic stay goes into effect that temporarily halts collection efforts — such as dunning calls, collection letters and lawsuits — by creditors. While the stay can provide relief for most types of debts, it does not apply to spousal support orders. You have to continue to pay your spousal support obligations throughout the bankruptcy process. If you don't, all past-due amounts will remain collectable.
Alimony in Bankruptcy
Alimony is considered a nondischargeable debt, which means that a debtor cannot eliminate past-due alimony by filing for bankruptcy. Alimony can be discharged, though, if the obligation isn't actually alimony, but rather something else. For example, some parties agree to call property settlement payments "alimony" so that the paying spouse can deduct them from his taxes. It can also sometimes be discharged if the alimony recipient has assigned her collection rights to a third party. In order for a discharge to happen, the other spouse — or the third party — must be served with notice that the claim has been included in the bankruptcy.
Effects of Bankruptcy on Alimony Case
While you may be protected from other creditors by the automatic stay, your ex-spouse can motion the court to enforce the support order and file a contempt-of-court suit. Failing to pay alimony pursuant to a court order can expose you to contempt-of-court charges, which can result in jail time. The court can also garnish your wages to enforce an alimony order. Furthermore, while you can generally move the court for a modification of your alimony order upon a showing of substantially changed circumstances, your ex-spouse can usually do the same. If you've obtained a bankruptcy discharge of some or all of your debt, she may be able to argue that you now have more income available to contribute toward maintaining her in the standard of living she got used to during your marriage.
Chapter 7 vs. Chapter 13
In a Chapter 7 (liquidation) bankruptcy, any proceeds from the liquidation of property can be applied toward past-due alimony. In a Chapter 13 bankruptcy, where you must repay a portion of your debts, your alimony obligation can actually help you. In Chapter 13, your alimony obligation is taken into account when calculating how much disposable income you can devote to your creditors. Remember that while your bankruptcy repayment plan can't be deducted from your taxes, your alimony payments can. This means that for each dollar you pay in alimony, you save an amount of money equal to your tax rate.