What happens to alimony in bankruptcy?

Watch out ladies and gents who are dealing with divorce.

You need to understand how the agreements you make with regard to alimony and property settlements will be treated if you ex elects to file bankruptcy as an escape. (Or if you’re planning to file bankruptcy to escape your ex’s hook’s on your wallet.)

Many bankruptcy attorneys don’t understand how the code treats alimony and property settlements, so it’s probably safe to assume many divorce lawyers (and perhaps the superior court judge who presides over your divorce) don’t either.

Without getting too much into the nitty gritty of the exact code sections that make it so, here’s the skinny:

If your ex files Chapter 7, neither your alimony nor your marital property settlements will be discharged. You will still get your property settlements as per your decree.

But, if he or she files Chapter 13–get ready.
Alimony is non-dischargeable, but property settlements can be discharged. E.g. if your ex succceeds in having his or her plan confirmed, and then completes plan payments, he or she will receive a Chapter 13 discharge. Your property settlement will be paid per the terms of the plan at the same rate as unsecured creditors. (That’s right you get treated the same as Mastercard and Amex.)

At the end of the plan, guess what? No more payments to you because your property settlement is discharged along with all unsecured debt.

So in the best case scenario–if ex proposes to pay 100% to unsecured creditors, you’ll get 100% over the life of the plan (either 3 or 5 years depending on ex’s income). And then you get bupkiss.

Worst case scenario–ex proposes to pay unsecured creditors less than 100% (Yes, plans are ABSOLUTELY confirmed with “0%” payback to unsecured creditors). You get less than you were supposed to get over the life of the plan. And then you bupkiss.

And what is the difference between alimony and property settlements?
Bankruptcy courts follow federal law, and will look beyond the “four corners” of the words of your divorce decree. Your attorney will explain the factors the court considers and will help you build your case.

If you’re in this pickle, you better find an attorney who understands these issues and can advocate on your behalf.

If you’re thinking about heading down the path of divorce make sure your divorce lawyer is aware of the “what might happens….”

Don’t sit on your rights.