Does Bankruptcy Reduce or Wipe Out Alimony/Child Support?
It is not unusual at the end of or even during family court litigation for one side to declare bankruptcy. It is a misconception that bankruptcy will affect child support or alimony payments. Many times people declare bankruptcy thinking that it will stop or reduce their support payments. However, this is a complete misunderstanding of bankruptcy law. When someone declares bankruptcy, the Trustee in Bankruptcy handles the debts on behalf of the person declaring bankruptcy. Apart from certain living expenses and the money to pay support, the person’s income goes to the Trustee. The remaining income, plus any assets, are divided up between those who are owed money. The amount owing for child support and alimony is considered non-discretionary and is excluded from what goes to the creditors. The payor will no longer need to pay off creditors before paying support, so instead of getting out of paying child support or alimony, the person who has declared bankruptcy actually has more money available to pay their support. In other words, their cash flow has improved. However, if your ex has declared bankruptcy, don’t just sit back to see what happens. Make sure you speak with a bankruptcy attorney to make sure you are protected.