How Bankruptcy Affects Divorce Settlements and Alimony

Financial difficulties and family law issues often overlap, particularly when one or both former spouses face significant debt after a divorce. When bankruptcy enters the picture, it can have direct consequences on the terms of a divorce settlement, especially with respect to property division, alimony, and child support.

Understanding how bankruptcy law interacts with family court orders is essential for both the person filing for bankruptcy and the ex-spouse. The type of debt, the type of bankruptcy filed, and the specific language in the divorce decree all affect the outcome.

The Intersection of Bankruptcy and Family Law

Bankruptcy is governed by federal law, while divorce is handled at the state level. This creates a complex legal relationship where certain obligations ordered by a divorce court may or may not be dischargeable in bankruptcy.

Federal bankruptcy law gives special protection to certain family-related obligations. However, not every financial commitment listed in a divorce decree is automatically shielded from discharge.

Key factors that determine how divorce-related debts are treated include:

• The chapter of bankruptcy filed (Chapter 7 vs. Chapter 13)
  
• Whether the debt is domestic support obligation (DSO) or property settlement
  
• How the debt is defined in the divorce judgment
  

How Alimony and Child Support Are Treated in Bankruptcy

Non-Dischargeable in Both Chapter 7 and Chapter 13

Alimony (also called spousal support) and child support fall under the legal category of domestic support obligations (DSOs). These obligations receive heightened protection under bankruptcy law.

• They cannot be discharged under any chapter of bankruptcy.
  
• The person receiving the support is considered a priority creditor, meaning they are paid ahead of most other creditors.
  
• Bankruptcy does not cancel arrears on past-due support. These amounts must be repaid, and they continue to accrue interest and penalties.
  

Impact on Enforcement

Filing for bankruptcy may temporarily halt certain collection activities through the automatic stay, but this stay generally does not apply to support enforcement actions. For example, wage garnishment for child support can continue even during bankruptcy.

Property Division and Debt Allocation in Divorce Settlements

Divorce settlements often divide marital property and assign responsibility for specific debts. For example, one spouse may be ordered to:

• Pay off a jointly held credit card
  
• Refinance a marital home loan
  
• Assume responsibility for an auto loan
  

These types of obligations are not always classified as “support” and may be treated differently in bankruptcy.

Chapter 7 Bankruptcy

In Chapter 7, property settlement obligations—such as taking on a joint debt or paying an equalizing payment to a spouse—may be discharged, unless they are reclassified by the court as being in the nature of support.

This can have a serious impact on the non-filing spouse. If your ex discharges the obligation to pay a shared credit card, for example, the creditor may turn to you for full payment.

Chapter 13 Bankruptcy

In contrast, Chapter 13 does not allow discharge of property settlement debts. This means even if a divorce-related obligation is not classified as support, it must still be repaid in full through the Chapter 13 repayment plan.

Because of this distinction, Chapter 13 is often recommended for debtors who want to protect themselves from support enforcement issues while retaining more flexibility over repayment.

Filing Bankruptcy During an Ongoing Divorce

If a bankruptcy is filed before the divorce is finalized, it can delay property division, since assets become part of the bankruptcy estate and subject to control by the trustee. In many cases:

• The divorce court may delay issuing final orders until the bankruptcy is resolved.
  
• One spouse’s attempt to discharge marital debts may affect the other’s legal and financial position.
  
• Accurate valuation and classification of assets become more complicated.
  

Coordinating the timing of both cases—especially when large debts or valuable marital property are involved—is critical. Legal counsel in both bankruptcy and divorce may be needed to ensure fairness and protect each party’s interests.

Filing Bankruptcy After a Divorce

When one or both spouses file bankruptcy after the divorce is finalized, the consequences depend on the structure of the divorce judgment:

• If the divorce decree assigns debt to one spouse, but both names remain on the account, the creditor may pursue the non-filing spouse if the debtor discharges the debt.
  
• If alimony or support was awarded, those obligations remain enforceable and are not affected by bankruptcy.
  
• A bankruptcy may help the filing spouse manage personal debts unrelated to the divorce, freeing up income to remain compliant with support orders.
  

It’s also important to note that filing bankruptcy post-divorce can potentially open the door to modification proceedings in family court if the debtor seeks to lower support payments due to changed financial circumstances. However, bankruptcy alone is not always sufficient grounds for modification.

Protecting Yourself When an Ex-Spouse Files Bankruptcy

If you are on the receiving end of a divorce settlement and your former spouse files for bankruptcy, consider taking the following steps:

• Review the divorce judgment: Determine whether specific obligations are classified as support or property settlements.
  
• Consult with a bankruptcy attorney: Learn whether the obligations may be discharged and what recourse you may have.
  
• Monitor bankruptcy filings: You may be entitled to file a claim in the case or object to the discharge of specific debts if they are improperly categorized.
  
• Work with your family law attorney: In some cases, enforcement through family court may still be an option, even during bankruptcy.
  

Being proactive can protect your credit, preserve your financial rights, and ensure that vital support obligations are honored.

Final Thoughts on Bankruptcy and Divorce Obligations

Divorce and bankruptcy each present their own legal challenges, but when they intersect, the consequences can become even more complex. Whether you are receiving support or responsible for paying it, understanding how bankruptcy impacts alimony, child support, and divorce-related debts can help you make informed choices that protect your financial future.

If you are navigating bankruptcy after a divorce—or concerned about how your former spouse’s bankruptcy may affect you—Padgett & Robertson is here to help you understand your rights and options under Alabama and federal law.

Call (251) 336-3695 to speak with our team and take the next step toward financial clarity and peace of mind.