Domestic support obligations like alimony or child support are considered priority debt and are not eligible for discharge or write-off in any bankruptcy chapter. In short, filing for bankruptcy will not relieve an individual of their domestic support duties, nor will it wipe the slate clean for the delinquent amount. Although they cannot be discharged, a bankruptcy case can still provide a lifeline for a person behind on domestic support obligations.
Minimize the pain
Serious problems can arise for someone who has fallen behind on child or spousal support. Wage garnishments are common. More significant consequences include being found in contempt of court, sued for delinquent payments, and even incarceration. Being thrown in jail (plus the fines and lost wages that result) can turn a situation from bad to downright unmanageable. For a debtor with past due alimony or child support, filing for bankruptcy can help avoid additional legal problems under the court’s protection while they reorganize under Chapter 7 or Chapter 13.
Immediate relief
Bankruptcy can help an individual save their home, car, put an end to annoying collection efforts, and avoid legal action from creditors. Both Chapter 7 and Chapter 13 allow balances like credit cards, medical debt, and personal loans to be discharged. Other debt will be consolidated and paid. Even though past-due alimony or child support payments will not disappear, satisfying domestic support obligations will be easier with less strain on the budget. Getting the situation under control removes an enormous psychological burden, creating security where there was chaos.
Should I file for Chapter 7 or Chapter 13?
For most individuals, factors outside of their domestic support obligations will determine how to file, but there are some notable differences.
Chapter 7
In Chapter 7 cases in which there are assets for the Trustee to sell, debts are classified, consolidated, and paid out in a lump sum whenever possible. Some debts will be cleared. In this case, the delinquent support amount is given top priority and paid out first. Domestic support payments need not be current to obtain the Chapter 7 discharge of debts. However, since most cases are short-lived (usually 4 to 6 months), any unpaid domestic support obligations will pass through unaffected and may create problems when the Chapter 7 case is closed. Furthermore, since in the majority of Chapter 7 cases, most assets are exempt (meaning the Trustee does not sell, but debtors get to keep their assets), debtors with substantial overdue support obligations may find themselves in a bind at the end of the case.
Chapter 13
Chapter 13 allows for broader consideration and treatment for those debts that are not dischargeable and which are often considered priority claims, such as domestic support obligations. This classification means that the Chapter 13 debtor must pay 100% of those obligations due when the case is filed through the Chapter 13 plan, and also maintain monthly payments up to date to receive the bankruptcy discharge. Because of this classification and the income limitations of most Chapter 13 debtors, this often results in income-based plan payments going first to satisfy child support obligations, in most cases leaving general creditors such as loan and credit card debt holders with a lesser portion of the plan’s proceeds. Namely, the remaining general debt is consolidated and receives a prorated portion that in some cases is less than 10%. In such cases, the remaining 90% of general unsecured debt is discharged without payment at the end of the Chapter 13 plan.
Under Chapter 13, it is possible that property settlement payments to a former spouse or other aspects of the divorce settlement (not including domestic support obligations), may be discharged without payment, or receiving as little payment as with other general unsecured claims. Because of this possibility, this usually generates additional litigation. The interplay between divorce court and bankruptcy court is often exceptionally complicated. A lawyer can help you navigate these waters, choose the best solution, and keep you protected from further legal action.
Use the protections afforded to you by law
Even the most prepared persons can find themselves in a situation where their financial obligations exceed their income. The consequences of overdue support payments can be heavy, but they are avoidable through protections provided in bankruptcy court. Contact the Law Offices of Jeffrey Lohman today to learn more about how bankruptcy can help you.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.