Is Alimony Dischargeable in Bankruptcy?

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Alimony, also called spousal support, domestic support obligation, or maintenance, is a payment from one ex-spouse to another. The payments are typically made after a divorce or legal separation. Alimony can be ordered by a court or agreed upon by the divorcing parties. The spouse who is paying the bills is called the “supporting spouse” that contributes funds to the “dependent spouse”.

Alimony, like child support, is a domestic support obligation that cannot be eliminated in bankruptcy. How can a person afford alimony? Filing Chapter 7 or Chapter 13 bankruptcy might allow an alimony payer to get other debts erased and make the alimony payment more affordable.

How is alimony paid?

Alimony is money paid to a spouse or former spouse after a divorce to assist with ongoing living expenses, such as food. It may be paid in one lump sum or regularly, such as weekly or monthly.

Typically, alimony is paid every month. A judge will sometimes command a spouse to pay a specific sum of money to the other spouse as maintenance, such as in cash or through the transfer of property (separate from the regular process of dividing the couple’s marital property).

Is alimony an unsecured debt?  

Unsecured debt is debt that does not have any collateral pledged to the creditor. In certain loans, such as mortgages and automobile loans, if payments are not made on time, the lender has the legal right to seize the debtor’s property.

An obligation to pay alimony is not suspended or halted by filing for bankruptcy. Whether a divorce decree-determined duty is dischargeable depends on whether it is classified as support or property settlement.

In many cases, obligations for property settlement may be canceled in bankruptcy, but alimony payments can’t. Whether an obligation is a support or property settlement obligation is made by federal bankruptcy legislation rather than state law.

How does debt affect alimony?

A judge will consider numerous factors when determining whether or not to award alimony, including the paying party’s financial situation.

In certain circumstances, a judge will demand one spouse to reimburse the debts of the other as alimony. In other situations, a judge will forgo ordering alimony if the paying spouse would incur greater debt paying alimony.

If you’re receiving alimony, you must reveal how much money you receive each month. Take the last six months of receipts and calculate the average monthly amount if your payments fluctuate.

Means test and alimony

The means test is based on your income, which alimony payments may impact. Alimony obligations aren’t discharged in bankruptcy. The automatic stay, however, might influence a debtor’s obligation to pay alimony during a pending bankruptcy case. Filing for bankruptcy may also impact any changes to alimony terms.

In any case, there are a few exceptions to the application of the automatic stay. One such exception is alimony claims in court. As a result, the automatic stay will not prevent the commencement or extension of a legal action related to alimony payments in civil or family court as long as it does not involve the non-filing spouse seeking to distribute property that is part of the bankruptcy estate.

If a debtor’s income is being withheld as the consequence of an administrative or judicial order for family support duties, it will continue even if he or she files for bankruptcy. Wage garnishments will not be stopped by the automatic stay in this instance.

FAQ

What debts are not dischargeable in Chapter 13?

The following debts are not discharged in a chapter 13 bankruptcy:

  • A home purchase or mortgage is one of the most important long-term financial commitments you’ll make.
  • Certain debts for alimony or child support, income taxes that have been assessed within the 3 years before your bankruptcy filing, government-funded or guaranteed educational loans, and benefit overpayments are not dischargeable.
  • Personal expenses resulting from death or personal injury caused by a driver who was intoxicated

Can you go to jail for not paying alimony in Michigan?

Failure to pay spousal support may result in a host of penalties, including civil and/or criminal ones. A person can be charged with a felony in Michigan and face up to four years in prison if they do not pay alimony on time or in the amount set by the court.

Spousal support is not always given in a divorce case, according to Michigan divorce law. If one spouse asks for spousal support and the couple cannot agree on assets or property division, the court must rule on whether spousal support is required.

 

Gambling While in Chapter 7

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Technically, you are allowed to gamble while in Chapter 7 bankruptcy. However, there are a few things that you need to keep in mind if you do choose to gamble while amid your bankruptcy case.

First and foremost, any money that you win while gambling will become part of your bankruptcy estate. This means that your creditors will be able to take a portion of your winnings to pay off your debts.

Additionally, if you have a gambling addiction, it is important to get help for this before you file for bankruptcy. This is because gambling can lead to even more debt, which can make it more difficult to get a discharge in your bankruptcy case.

How good is gambling for your wallet?

The gambling industry claims that the gambling business is a socially beneficial one with both economic and non-economic benefits. It is claimed that gambling creates wealth through job creation, consumer spending, and increased tax revenue. However, the economics of gambling are debatable.

The correlation between gaming and gambling debts to bankruptcy filings is unclear. Some studies claim that gambling is either a major reason or a contributing factor in bankruptcy filings. It also says that 10% to 26% of problem gamblers file for bankruptcy.

Regulations on gambling

Gambling is not mentioned in the US Constitution, and therefore it does not fall under federal jurisdiction. The 10th Amendment reserves the right to regulate gambling in the states.

Congress has enforced the Interstate Commerce Law to limit both interstate and international gambling.

Each state has the authority to prohibit or legalize the practice within its boundaries. Almost every state, if lotteries are run by the government, can be considered to allow some degree of gambling.

 

Gambling and bankruptcy

The goal of bankruptcy is to separate the innocent but unfortunate debtors from those who have committed various types of culpable actions.  This is accomplished by forgiving the debts of the former and holding the latter accountable through different types of bankruptcies.

If the debtor has lottery tickets or other similar gambling property, they must be reported. Gambling winnings that were acquired at the time of filing are a part of the estate’s assets and must be disclosed.

Difference between non-gambling debt and gambling debt

Unsecured debt, such as gambling debts, is unsecured and should be written off completely in a chapter 7 bankruptcy and placed behind secured debts in a chapter 13 repayment.

Sometimes, creditors may fight back and protest the debt being forgiven.

Gambling debts are frequently defined as unsecured debt since they are not secured by any property. This makes them comparable to credit cards or medical expenses. As a result, gaming debt is typically dischargeable in bankruptcy.

However, there are some exceptions to this rule. If you incurred your gambling debt while you were intoxicated or if you gambled intending to incur debt, then your gambling debt may not be discharged in bankruptcy.

 

Gambling addiction

Additionally, if you have a gambling addiction, you may want to consider getting help for this before you file for bankruptcy. This is because gambling can lead to even more debt, which can make it more difficult to get a discharge in your bankruptcy case.

Are gambling debts dischargeable in bankruptcy?

It wasn’t long ago that bankruptcy courts routinely rejected gambling debts as non-dischargeable. However, more recently, and perhaps as a result of the increase in permitted gambling in many states, the courts have begun allowing debt discharge.

Gambling debts are dischargeable in bankruptcy, just like other types of unsecured debts such as credit cards and personal loans. Certain gambling debts, on the other hand, may be exempt from discharge under certain circumstances.

 

In conclusion, gambling is not illegal while in Chapter 7 bankruptcy, but there are some things that you need to keep in mind if you do choose to gamble. Any money that you win while gambling will become part of your bankruptcy estate and your creditors will be able to take a portion of your winnings to pay off your debts. Additionally, if you have a gambling addiction, it is important to get help for this before you file for bankruptcy.

FAQ

Can I get charged with fraud for declaring bankruptcy due to gambling debt?

A creditor may challenge your bankruptcy filing if they believe that you incurred your debt under pretenses or by fraud. Gambling is viewed as fraudulent for debtors if they intend to use it to avoid creditors from getting money. When a debtor gambles during bankruptcy, all of his or her debts become non-dischargeable. As a result, the debtor will be required to pay off all of his or her post-bankruptcy obligations, not just gaming debts.

Do I have to report my gambling debts or wins?

All winnings from lotteries, raffles, horse races, casinos, and other forms of gaming are taxable. Non-cash awards such as automobiles or holidays are valued at their market value.

Gambling losses are also tax-deductible to the extent of your winnings, but they must be declared as taxable income on your tax return. Gambling profits are completely taxed and must be shown on your income tax return.

Who can help me understand bankruptcy and gambling?

If you have any questions about gambling while in Chapter 7 bankruptcy, be sure to speak with your bankruptcy attorney. They can give you specific guidance on how to handle this issue in your particular case.