Thursday, February 18, 2016

Marital & Family Law: Bankruptcy and Domestic Support Obligations

By Alfred Villoch III

       An ex-spouse has fallen behind on alimony and now filed bankruptcy. That alimony will be discharged in the bankruptcy case, right?

       Not so fast. An ex-spouse cannot simply walk away from alimony, whether past, present, or future, by filing a bankruptcy case. Under Bankruptcy Code § 523, 11 U.S.C. § 523(a)(5), a debtor is not entitled to discharge any debt for a domestic support obligation, including alimony. 11 U.S.C. §§ 523(a)(5), (15).

       In fact, a bankruptcy court will not consider modification of alimony or other domestic support obligations,* like child support. This complete hands-off approach might seem harsh to some at first, but Congress wrote the Bankruptcy Code so that a person could not use “the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations.” In re Proyect, 503 B.R. 765, 773 (Bankr. N.D. Ga. 2013) (quoting H.R. Rep. No. 103-835, at 54 (Oct. 4, 1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3363).

      An ex-spouse is not without recourse, however. Rather than file for bankruptcy, an ex-spouse may still turn to the state divorce court itself to modify the alimony and child support for the same financial reasons that would lead to or underlie a bankruptcy filing.

      Also, there is still some hope in bankruptcy. In certain limited instances, an ex-spouse in bankruptcy might argue that “what they owe” is not truly alimony or a domestic support obligation. For example, what if the state divorce court orders the ex-spouse to pay the other ex-spouse’s attorneys’ fees and costs? If the fees and costs awarded are punitive and not in the nature of support, then it may be possible to modify or discharge that obligation in bankruptcy.

       Bankruptcy courts look at the substance of the support obligation, largely disregarding what the parties call it. Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir. 2001). The question is whether the obligation is “in the nature of support.” A debt is “in the nature of support” if, at the time the debt was created, the parties intended the obligation to function as support. The key determination in whether a debt is non-dischargeable alimony or a domestic support obligation under the Bankruptcy Code is the intent of the parties.

       In short, an ex-spouse cannot simply throw up his or her hands and file bankruptcy to avoid or modify alimony. Bankruptcy courts will only recharacterize and discharge a domestic support obligation if evidence shows that it is not in the nature of alimony, maintenance, or support.

* Note: “Domestic support obligation” is a broad term defined by the Bankruptcy Code and includes alimony, child support, and anything that is in the nature of alimony, maintenance, and support. 11 U.S.C. § 101(14A).