When Your Ex Files Bankruptcy

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Outrage is the usual reaction when a former spouse who owes you child support or alimony files bankruptcy.

It reinforces all those less-than-flattering thoughts you harbor about your ex.

But maybe that’s not the right reaction for two reasons.  One is old: support debts can’t be wiped out in bankruptcy.

The second reason is new: failure to pay support is grounds for dismissal of a bankruptcy case.

You may have levers that weren’t available to you before.

Unpaid support dooms reorganization

Chapter 11 and Chapter 13 are reorganization chapters of bankruptcy.  The person filing for relief stays in possession of their assets and proposes a plan to solve their financial problems.

If you’re in financial trouble, it seems to offer the best of both worlds:  you keep your stuff and get immediate protection from your creditors.

But there’s a condition.  The debtor needs to stay current on support obligations that come due after he files the bankruptcy case.

Failure to pay domestic support obligations (the Bankruptcy Code’s catch phrase for alimony, spousal support, child support or family support) is ground for dismissal of the reorganization case, or conversion to Chapter 7, where a bankruptcy trustee takes control with an eye to liquidating assets.

That is just what happened in a case where I represented a spouse with an order for temporary support.  Husband had never paid on the support order before or after the the bankruptcy was filed.

Consequence:  husband’s Chapter 11 case was converted to Chapter 7 because he failed to meet the terms of the family court support order.  Section 1112 (b)(4)(P) lists failure to pay a domestic support obligation cause for conversion or dismissal of the case.

For this client, conversion has a second benefit:  husband’s wages earned after conversion are not protected by the bankruptcy code. My client will be able to get an earnings withholding order to direct his future earning toward the unpaid support.

Support debts never dischargeable

No matter what chapter of bankruptcy is selected, the debtor cannot wipe out support obligations.  Support is expressly made non dischargeable by 11 USC 523(a)(5).

If the bankruptcy case is one where payment is going to be made to creditors, support is the very first debt in line for payment.  The distribution scheme in bankruptcy provides that a debt with priority gets paid in full before debts with lesser priority are paid.

You need to file a proof of claim, however, in order to be paid.

Property that the debtor is able to exempt from the claims of other creditors is not protected from claims for a domestic support obligation.  11 USC 522(c)(1).

The unanticipated benefit of a bankruptcy of the spouse ordered to pay support is that other, non support debts may get discharged.  That leaves fewer creditors competing for payment with the support order.

So, things may not be so bad as they first seemed.

If you have an unpaid domestic support order and your ex files bankruptcy, get help from an experienced bankruptcy lawyer.  You may have cards to play in this game.

 

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