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Bankruptcy Rules Regarding Alimony, Spousal and Child Support

Divorce often puts tremendous strain on both spouse's finances. One spouse is suddenly paying alimony, spousal or child support, while the other may be scrambling to find a job after staying home with the kids for years. Both have increased living expenses with the move to two separate residences.

Either of the parties may consider bankruptcy as a way to get rid of some of their debt burden from the marriage and move on. Filing for bankruptcy can free an individual from many of the debts they currently owe and help them start over. But if you're divorced -- especially if you pay alimony or other support -- consider carefully whether bankruptcy is the right step for you.

You should be aware that your court-ordered obligations to pay alimony or other forms of support won't go away in a bankruptcy. Court-ordered support cannot be discharged or eliminated in a bankruptcy.

After the bankruptcy concludes, you will still owe the same alimony or support payments you did previously, just as if the bankruptcy never happened. Other, unsecured debts such as personal loans or credit-card bills can be eliminated in a bankruptcy, possibly putting you in a better position to pay your ongoing support responsibility.

On the other hand, if you are the spouse collecting support payments, know that this money will be considered income in determining whether you can repay any of your debts. This helps determine what type of bankruptcy you will file.

If you have some ability to repay your lenders, you will need to use the Chapter 13 bankruptcy structure. In Chapter 13, you work out a repayment plan to pay off your debts over time. You must stay current in your alimony or support payments to keep your Chapter 13 repayment plan in effect and conclude your case. Property settlements from a divorce may be dischargeable under Chapter 13, though.

If your income is inadequate to pay off even part of your debt over time, Chapter 7 liquidation will be more appropriate. You will be able to resolve many debts in Chapter 7, but your child support or alimony payments will not be affected.

If you're considering filing for bankruptcy in Michigan, call 1-866-690-2140 or email our office to speak with expert bankruptcy attorney John Steinberger, or complete our contact form.

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