Spousal support and child support in New York are treated specially during bankruptcy
In a New York divorce, it is not uncommon that one spouse is required to pay to the other either spousal support (also called maintenance or sometimes referred to as alimony) or child support or both. What happens if one of the spouses faces bankruptcy?
Support orders receive special treatment in the New York judicial system. Under the federal Bankruptcy Abuse Prevention and Consumer Protection Act, spousal and child support are designated domestic support obligations and, as such, are priority debts. This means that in Chapter 7 and Chapter 13 bankruptcy proceedings, spousal support and child support orders are not dischargeable by the debtor. That is, those support obligations are not wiped away by the bankruptcy. As a result, the “automatic stay”, designed to give a debtor breathing room and a break from creditors, may not be used to avoid making support payments. Other personal debts such as unpaid medical bills, credit card or housing debts may potentially be discharged.
The failure to pay a support obligation may be prosecuted in the criminal justice system, which differs substantially from the failure to pay other debts. Decide on your own to stop paying child support? You can face incarceration from contempt of the child support order. Such enforcement remedies are much greater than for other types of debt judgments.
Because of the special legal treatment of support, it is crucial to have support awards structured properly. On occasion, marital settlement agreements are structured as a trap, whereby a spouse is induced into accepting lump sum payments over time. The problem is that these payments are not considered a support obligation, but instead a property settlement under Section 1041 of the Internal Revenue Code. As an equitable distribution of marital property, they are not deductible or includible in whole or in part by either Party on his or her income tax returns. These property settlements are often long term payments and, unlike a support order, would likely be dischargeable in a bankruptcy proceeding.
Public policy mandates that debtors continue to pay support obligations. The theory is that if a party does not receive support for living expenses, other means of support such as public assistance or other state programs for support will be utilized. That result is contrary to the intention of the bankruptcy statute, which does carve out protection for spouses and children in need of support for daily living needs.
If you are the support provider and you are facing serious financial difficulties, the situation may not be hopeless. In the event that a debtor has a substantial change in circumstances such that he or she is unable realistically to cover his child support obligation, the proper course of action is to seek a modification of the support order. A modification may be obtained at relatively low cost in Family Court. A debtor will be required to prove the change in circumstances from the time of the original order such that the modification is necessary.
Do you need help ensuring support payments, or are seeking a change in a support order owing to financial difficulty? Complete our short intake form today to schedule a FREE consultation. We will respond promptly.
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