Support issues are difficult enough when the parties are solvent, but what happens when one of the spouses goes through bankruptcy?
Can support obligations be discharged? And on the other side, can the receiving spouse still collect if he or she files for bankruptcy?
If the paying spouse files for bankruptcy:
In short, bankruptcy doesn’t relieve the paying spouse of his or her support obligations.
First, support payments are nondischargeable. The Bankruptcy Code explicitly exempts “domestic support obligations,” which include any debt owed to a “spouse, former spouse, or child” in the nature of “alimony, maintenance, or support,” from discharge. So the paying spouse can’t get out of support payments simply by filing for bankruptcy.
Interest accruing on support obligations is also nondischargeable, so it’s important that the paying spouse stays on top of payments even if he or she is contemplating bankruptcy.
In fact, a Chapter 13 petition will be dismissed if the debtor falls too far behind in post-petition support obligations.
Second, support payments are exempt from the automatic stay. Although an automatic stay is triggered whenever someone files for bankruptcy, support obligations are exempt from its general prohibition against litigation and debt collection activities without prior court approval.
Support obligations also enjoy first-level priority among unsecured claims and will be paid ahead of other debts.
If the receiving spouse files for bankruptcy:
For a support recipient who files for bankruptcy, the right to receive support is likely property of the bankruptcy estate-at least technically. Spousal support due before the petition is filed is property of the bankruptcy estate. As a result, the estate and its creditors may theoretically enforce payment and use the recovered funds to pay for its claims.
Although not definitively resolved under Massachusetts law, child support likely “belongs” to the custodial parent in the bankruptcy context and would also be considered property of the estate.
The right to future support is similarly muddled, though the fact that Massachusetts seems to treat support awards as “property” of the holder suggests that it, too, would be property of the bankruptcy estate.
But there’s a way out for the receiving spouse:
Reasonable support may be exempted. A debtor may exempt “alimony, support, or separate maintenance, to the extent reasonably necessary.” It’s on the debtor, however, to show just how much support is “reasonably necessary.”
Both sides should keep in mind that a support award may be modified if a bankruptcy discharge results in a material change in the parties’ economic circumstances.
For an in-depth discussion on the interplay between bankruptcy and divorce, including legal and practical considerations, contact the Law Offices of Renee Lazar either through email or telephone 978-844-4095 to discuss your concerns.