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Archive for the ‘Child And Spousal Support’ Category

Bankruptcy Does Not Write Off Child or Spousal Support Debts

March 11th, 2019 at 7:00 am

Child support and spousal support debts cannot get written off in bankruptcy. But is your specific divorce debt legally considered support? 

 

We’re in a series of blog posts about special kinds of debt which bankruptcy may not discharge—write off.  So far we’ve covered criminal fines and restitution, and income taxes.

Child and spousal support are more like criminal debts than like income taxes. Bankruptcy simply does not discharge a criminal debt, as long as it really is a criminal, not civil, obligation.  Bankruptcy does discharge income tax debts that meet certain conditions. Bankruptcy simply does not discharge child and spousal support, IF it fits bankruptcy’s definition of support.

No Discharge of Support

Bankruptcy law is clear that neither Chapter 7 “straight bankruptcy” nor Chapter 13 “adjustment of debts” discharges support debts.

Section 523 of the U.S. Bankruptcy Code lists the “Exceptions to discharge.” It includes that “A discharge under [Chapter 7] does not discharge an individual debtor from any debt—(5) for a domestic support obligation… “ Section 523(a)(5).

Chapter 13 says the same thing by incorporating this Chapter 7 exception to discharge in its own list of exceptions.  Section 1328(a)(2).

What’s Considered Support in Bankruptcy?

So if you owe a “domestic support obligation,” you’re not getting out of it through bankruptcy. But what does that phrase mean? What does it include and what might if not include?

The Bankruptcy Code’s definition of “domestic support obligation” is 221 words long, containing 10 clauses. Section 101(14) of the Bankruptcy Code.  It appears to be a broad definition, covering anything that would sensibly be considered child or spousal support. For example, the debt could be owed not just to your ex-spouse or your child, but also to a current spouse (through a separation agreement) or to the parent, legal guardian, or responsible relative of a child (based on a court order of support, even if not biologically your child). In other circumstances, to be considered support the debt does not necessarily need to be based on a court order. It can be based on a separation agreement or “a determination made in accordance with applicable nonbankruptcy law by a governmental unit.”

Yet there are some limitations. For example, support obligations are often assigned for collection to someone other than the ex-spouse or child. Usually it’s assigned to a state or county support enforcement agency—then it’s still considered support. However, a support obligation that was “assigned to a nongovernmental entity” for collection is no longer considered support in bankruptcy. That is, it isn’t “unless that obligation [was] assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.” Section 101(14)(D).

Obligations “In the Nature of” Child or Spousal Support

Sometimes a domestic relations court will call something support that really isn’t.  The bankruptcy court does not have to accept what your divorce court labeled as support.

The definition of a “domestic support obligation” (that is, support) includes the requirement that it really be “in the nature of alimony, maintenance, or support” on behalf of the pertinent person. Section 101(14)(B). If it’s not, the debt may be dischargeable.

“Support” That Might Be Dischargeable in Bankruptcy

For example, a debt that’s labeled as support might not really be “in the nature” of support if it’s actually a “property settlement” obligation that’s mislabeled as spousal or child support.

A property settlement obligation involves the resolution of a marital asset or debt. For example, you may owe money to your ex-spouse in return for receiving more than your share of marital assets. Or you may owe in return for your ex-spouse taking on what had been a joint debt. If a divorce judge requires you to pay “support” for what is really a property settlement, it may be discharged in bankruptcy.

The Difference This Can Make

Chapter 7 discharges neither support nor property settlement debts.  But Chapter 13 can discharge property settlement debts.

So if you have obligations called “support” but which are not “in the nature of support,” a Chapter 13 is worth looking into. Chapter 13 may especially be worthwhile if the debt at issue  is large.

Conclusion

If you owe a debt labeled as support by your divorce court, most of the time it will indeed be “in the nature of” support. But not always.

You can see that the interplay between divorce law and bankruptcy can get complicated. Talk with your bankruptcy lawyer about all of your divorce obligations to get all the relief you’re entitled to.

 

The Surprising Benefits: Stop Collection of Support Arrearage

June 18th, 2018 at 7:00 am

Ongoing child or spousal support is a very special type of debt in bankruptcy. So is support arrearage. Here’s how bankruptcy handles them. 

 

Most Debts

Filing bankruptcy stops—or “stays”—the collection of most debts. (See Section 362(a) of the U.S.  Bankruptcy Code about the “Automatic Stay.”) Then at the end of the bankruptcy case most debts are discharged—legally written off. (Sections 727 and 1328 of the Bankruptcy Code.) At that point the creditor is permanently forbidden to collect the debt.

Special Debts

However, filing bankruptcy doesn’t stop the collection of certain specific types of debts. And it only temporarily stops the collection of other types. These tend to be the types of debts that bankruptcy does not discharge.

Also, with some debts, whether collection is stopped depends on whether you file a Chapter 7 “straight bankruptcy” or instead a Chapter 13 “adjustment of debts” case.

The special debts for which collection does not stop or may stop only temporarily include:

  • ongoing monthly child and spousal support
  • child and spousal support arrearage
  • recent income taxes
  • student loans
  • debts incurred through fraud

Again, these tend to be debts that do not get discharged in bankruptcy. However, bankruptcy does provide tools for resolving such special debts permanently. Today we’ll show how this works with ongoing child/spousal support and support arrearage. We’ll cover the rest in the next couple of weeks.

Ongoing Child and Spousal Support

We need to distinguish between ongoing child and spousal support and support arrearage.

Ongoing support is what the divorce court requires you to pay on a regular basis, usually monthly. It is a type of obligation treated with more respect than likely any other consumer debt in bankruptcy.

Accordingly, filing bankruptcy does not stop the collection of ongoing support. If you are paying support voluntarily you need to continue paying it.  If you are paying through a payroll deduction or a garnishment, it will continue.

This is true whether you file a Chapter 7 or a Chapter 13 case. Neither affects your continued obligation to pay ongoing support. The “automatic stay” does not apply. (Section 362(b)(2).) The discharge of debts does not apply. (Sections 523(a)(5), 1328(a)(2), and 101(14A).)

Child and Spousal Arrearage

As for support arrearage, neither Chapter 7 nor 13 can discharge this kind of debt either.

However, the automatic stay can stop collection of support arrearage, but only in a Chapter 13 case. Filing a Chapter 7 case will not stop support arrearage collection actions.

This ability to stop support arrearage collection through Chapter 13 can be extremely helpful. If you are behind on support payment, especially if you are significantly behind and its collection is financially hamstringing you, filing the more complicated Chapter 13 may well be worthwhile for this reason alone.

It’s extremely important to be aware that after filing your Chapter 13 case you can lose this automatic stay protection about collection of support arrearage. To prevent renewed collection, 1) you must keep current on your ongoing support, 2) your Chapter 13 plan must show how you will pay all the support arrearage during the case, and 3) you must consistently make your Chapter 13 plan payments so that you are in fact making continued progress towards paying off the support arrearage. If you don’t do any of these, your ex-spouse or support enforcement agency can quickly get the bankruptcy court to give permission to re-start collection of the support arrearage.

 

Limited Automatic Stay Protection for Unpaid Child/Spousal Support

February 7th, 2018 at 8:00 am

Chapter 7 doesn’t stop collection of unpaid support, but may enable you to catch up. Chapter 13 does stop this collection, conditionally.   

 

Our recent blog posts have been about situations when creditor collection actions are not stopped by a bankruptcy filing.  An example is a criminal fine or restitution. A bankruptcy filing has no effect on your obligation to pay criminal debts or on the collection of those debts.

We’ve also gotten into situations when collections are stopped only temporarily, including when that’s long enough to solve your problem. An example is a recent income tax debt. A Chapter 7 bankruptcy filing stops tax collections only for a few months. But that should be long enough to start a monthly payment plan, especially one that you can now afford after getting rid of all or most of your other debts.

So today we get into one special kind of debt for which the debt collection either doesn’t stop at all, is stopped only temporarily, or is stopped permanently. If you are behind on child or spousal support, you have three options in bankruptcy.

  • Filing a Chapter 7 “straight bankruptcy” does not stop collections on unpaid support at all. But it may write off enough other debts so that you can catch up on support.
  • Filing a Chapter 13 “adjustment of debts” can stop collections on unpaid support. But that can easily become only temporary.
  • A Chapter 13 case can stop such collections IF you act very proactively and consistently.

We explain these today.

The “Automatic Stay” on Support Collections

Unpaid child and spousal support is a very special kind of debt. It is treated as an almost sacredly among debt. Without cataloging all the differences, you can never discharge (legally write off) a support debt. (See Sections 523(a)(5) and 101(14A) of the U.S. Bankruptcy Code). It is the highest priority of the many so-called priority debts—meaning it must be paid ahead of all other debts. (See Section 507(a)(1) of the Bankruptcy Code.)

Unpaid support is special also in that you’re helped by the automatic stay only in to a limited extent. However that limited extent may nevertheless be extremely helpful.

Some Limited Help in Chapter 7

As we said above, the automatic stay does not even come into play under Chapter 7 as to unpaid support. But in the right situations Chapter 7 still helps by discharging all or most of your other debts so that you can afford to catch up on your unpaid support.

You or your attorney would negotiate terms for catching up with your ex-spouse or with the support enforcement agency. If getting rid of your other debts gives you the financial ability to catch up quickly on support, Chapter 7 could be a practical solution.

The Practical Problem

The problem is that your spouse or support enforcement may no longer accept terms that would work for you.  Since Chapter 7 does nothing to stop your ex-spouse or support enforcement from continuing or starting collection efforts against you, you have no leverage and no protection.

Temporary Help in Chapter 13

Filing a Chapter 13 case DOES stop support collections at least temporarily. But your ex-spouse or the support agency can quickly file a motion asking to resume collections. The bankruptcy court would likely grant this motion unless you meet a set of requirements, and do so timely and extremely consistently. If you don’t, actions to collect on the unpaid support could resume quickly.

Permanent Help in Chapter 13

However, IF you DO strictly follow the requirement, the collection of unpaid support obligations IS stopped under Chapter 13. And this collection continues being on hold throughout the 3-to-5-year course of the Chapter 13 case as long as you continue meeting those requirements.

Here are those crucial requirements:

  • Your Chapter 13 payment PLAN shows how you will pay all the upaid support debt during the plan period.
  • You pay any future ONGOING monthly support payments on time. It’s especially important that you’re on time with the payments due shortly after you file the Chapter 13 case.
  • You actually DO pay your monthly Chapter 13 plan payments on time throughout the case. Otherwise you’re not paying the unpaid support debt as you committed to do in your plan.

If you follow these requirements to the letter your ex-spouse/support enforcement agency would not be able to get court permission to take any collection actions against you throughout the Chapter 13 case. Then by the end of the payment plan you’d be current on the support. Your problems on this front would be fully resolved.

 

Catching up on Child or Spousal Support

August 16th, 2017 at 7:00 am

If you’re behind on support payments, filing under Chapter 13 can legally stop your ex-spouse and support enforcement from pursuing you.  


Your filing of a Chapter 13 case can stop your ex-spouse and support enforcement agency from very aggressively pursuing you. It can give you a reasonable time to cure your unpaid support payments. But you have to strictly follow the rules to get this advantage.

Here’s how it works.

The “Automatic Stay” As It Applies to Child and Spousal Support 

Filing either a Chapter 7 or Chapter 13 bankruptcy case stops most creditor collection actions.  This happens through the power of the “automatic stay.”  See Section 362(a) of the U.S. Bankruptcy Code.

But child and spousal support debts are an exception to the automatic stay. The Bankruptcy Code makes clear that the “automatic stay does not apply to “the collection of a domestic support obligation.” Section 362(b)(2)(B).  “Domestic support obligation” includes both child and spousal support. Section 101(A14). And it includes support that becomes owing “before, on, or after the date” of filing the bankruptcy case.

So collection of both past-due support and ongoing support is generally not stopped by a Chapter 7 “straight bankruptcy” filing.

Also, if you file a Chapter 13 “adjustment of debts” case, the collection of ongoing monthly support payments is not stopped. That makes sense since there is usually a divorce court order that requires the payment of those monthly amounts. The federal bankruptcy court respects these divorce court orders. So if you need to terminate or reduce a monthly support payment, that needs to be done through the divorce court which entered that support order.

Chapter 13 and Past-Due Support Collection

However, Chapter 13 does stop the collection of past-due support.

That can be hugely important. That’s because a Chapter 13 case not only stops past-due support collection, but provides a practical way to catch up.

If you are behind on child or spousal support Chapter 13 gives you up to 5 years to catch up. And it can protect you throughout that time in a number of ways. It protects you directly from the collections actions of your ex-spouse or your local support enforcement agency. And it also protects you from all of your other creditors as you deal with all your debts at once through a court-approved payment plan.

Your Chapter 13 payment plan works because it is based on what you can afford to pay. It takes care of everybody in one package so that you don’t worry about not being able to catch up on support because of the demands of other creditors.

Preventing or Stopping Aggressive Support Collection

This power of Chapter 13 is so important because your ex-spouse/support enforcement agency have some extremely aggressive collection tools. If you get behind, your wages and bank accounts can be garnished, liens can be placed on your real estate, and your driver’s license can be suspended. In most states any other state-issued licenses can also be suspended. This includes occupational and professional licenses that you may need to pursue your livelihood.

So you are very much at the mercy of your ex-spouse/support enforcement agency if you’re behind on your support obligations.

Must Follow Rules Strictly

So Chapter 13 can get you out of this difficult dilemma by stopping this intense collection of past-due support. But you can only maintain this protection if you follow the rules very strictly.

  • Your Chapter 13 plan must include enough money to pay off the past-due support before the end of the case.
  • You must keep current on your ongoing support (assuming you continue to owe it). This includes being very clear about when the first monthly support payment is due after your Chapter 13 case is filed and paying it on time. Otherwise your ex-spouse/support enforcement can inform the bankruptcy court of your non-payment. It would then very likely get permission to start/resume collection of the back support. That also applies to all subsequent monthly support payments during your Chapter 13 case.
  • You are already obligated to keep current on your monthly Chapter 13 plan payments, but all the more so here. Those plan payments are what’s paying the past-due support (along with whatever other debts you are paying through the plan). So if you fail to make any plan payment on time your ex-spouse/support enforcement can ask the court for permission to resume collection of the back support amount.

Conclusion

Chapter 13 gives you extraordinary power to stop collection of your past-due support. But you need to be really responsible or else you’ll lose that power.

 

Can “Priority” Debts Be Discharged in Chapter 7 Bankruptcy?

September 9th, 2016 at 7:00 am

A bankruptcy trustee would pay your “priority” debts ahead of other debts in an “asset case.” But what happens in a “no asset case”?

 

Our last blog post showed how a Chapter 7 trustee favors “priority” debts when paying any of your debts. The trustee pays priority debts in full before paying anything to your other debts. It gets the money to pay any of your debts by liquidating assets that you might own which are not protected, or “exempt.”

But the reality is that most of the time the trustee doesn’t pay ANY of your debts. That’s because most Chapter 7 cases are “no asset cases.” This means that the trustee has no assets to distribute to your creditors, since everything you own is protected from them.

So what happens to your priority debts then?

Priority Debts and Debts that Can’t Be Discharged

There’s a list of ten different kinds of priority debts in the U.S. Bankruptcy Code. (See Section 507(a)(1-10).) Many of them only apply to businesses filing bankruptcy, and of those quite a few to rather obscure businesses. (For example, one applies only to businesses that own a grain storage facility!)  Only a few kinds of priority debts apply to consumer and small business bankruptcies. In our last blog post we mentioned two of them—child/spousal support and certain taxes—but there are a couple others you may encounter.

If all the assets that you own are not protected, so that the trustee is not going to take anything from you, and not going to pay any of your debts, the priority debt distinction doesn’t make any difference.

But many kinds of priority debts have a characteristic that does make a difference in every Chapter 7 case where they are found: they can’t be discharged—legally written off—in bankruptcy.

Not every priority debt is nondischargeable. We must look at each kind of priority debt one at a time to see if it can be discharged. One of your biggest concerns when considering bankruptcy is whether you have any debts that bankruptcy would not discharge and that you’d have to pay anyway.

Nondischargeable Debts

There’s a separate list of debts that a bankruptcy does not discharge, or legally write off. Actually there’s one list that applies to Chapter 7 and another to Chapter 13. (See Section 523(a)(1-19) and Section 1328(a & b).

In the next few blog posts we go through the most important kinds of the priority debts, and see which of them can’t be discharged in bankruptcy.

Child and Spousal Support

We start today with child and spousal support. It is the priority debt of the highest priority. It is also never discharged in bankruptcy. Let’s look at how this works in practice.

“Domestic Support Obligation”

The Bankruptcy Code succinctly states that you can’t discharge a debt “for a domestic support obligation.” Section 523(a)(5). The definition of “domestic support obligation” is anything but succinct. (See the 220-word definition at Section 101(14A)!) But to keep it simple, a “domestic support obligation” is essentially a debt owed for child or spousal support.

Here’s an example how this works in a straightforward “no asset” Chapter 7 case.

A Practical Example

Assume that at the time you file bankruptcy you owe $85,000 in medical bills, personal loans, and credit cards. You’re also behind $2,700 on your $500 monthly child support payments because of a period of prior unemployment. You decide to file a Chapter 7 case because:

  • Everything you own is covered by property exemptions, meaning the bankruptcy trustee can’t take anything from you.
  • The $85,000 of debts would very likely all be discharged, and that would happen within about 4 months of filing.
  • Assume that you qualify for Chapter 7 because your income is less than the “median family income” for your family size for your state.
  • You know that you can’t discharge the $2,700 that you’re behind on in child support. But you already have made or expect to make arrangements to catch up with your ex-spouse or support enforcement.  

You and your bankruptcy lawyer prepare the documents and file your Chapter 7 bankruptcy case. The trustee assigned to your case verifies that everything you own is exempt—that you have a “no asset case.” So, even though your $2,700 support debt is a priority debt, the trustee has nothing to pay it with. Instead you agree to pay an extra $150 per month in catch-up payments directly to your ex-spouse or support enforcement agency, bringing you current in 18 months. You are confident about being able to afford this after discharging all your other debts.

Your Fresh Start

Three or four months after filing your case the bankruptcy court enters an order discharging all of your debts except the child support. You have gotten a fast financial fresh start, except for the support arrearage. But you have reasonable way to catch up on that, giving you a completely fresh start 18 months later. That’s much faster than a Chapter 13 case, which can give you more protection and flexibility on the back child support but would likely take 3 to 5 years to complete.

 

Addressing a Child or Spousal Support Lien through Bankruptcy

June 8th, 2016 at 7:00 am

A support obligation is a very special kind of debt, and the resulting lien on your home has to be dealt with in a very special way.

 

Support—A Very Special Debt

If you are behind on child or spousal support then you owe a debt that is treated differently both outside and inside bankruptcy.

Before you file bankruptcy, your ex-spouse and support enforcement agencies have very aggressive tools they can use against you, your income, and your assets to try to make you catch up on unpaid support.

If you own a home, those tools include a lien that is very likely imposed on your home’s title in the amount that you owe.

Some of the support collection tools that can be used against you, including the support lien on your home, are affected when you file bankruptcy and some are not. It depends on the circumstances and especially on whether you file a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” Chapter 13 gives you a much more powerful way to fight back.

Chapter 7 vs. Chapter 13

Chapter 7 “straight bankruptcy” is not able to directly help with support debts. All it can do is write off all or most of your other debts. Then you would likely be better able to pay your ongoing monthly support, and also catch up on the unpaid back support.

But both during and after a Chapter 7 case you would have no protection from collection actions against you for the unpaid support. Any lien that you might have on your home for the unpaid support would remain on the title throughout that time. You would have no protection from actions against your home under that lien, including potentially a forced sale of the home to pay the debt.

In contrast Chapter 13 does stop your ex-spouse’s or support enforcement agency’s collection of unpaid support. A Chapter 13 payment plan that you propose with your bankruptcy lawyer specifies how you’re going to catch up on the unpaid support over a period of as long as 5 years. This payment plan is based on your real budget. So it can give you a very flexible way to catch up on what you owe.

Very importantly, unlike Chapter 7, as soon as you file your Chapter 13 case you get protection from collection of the support that is unpaid as of that date. This includes collection actions on the support lien on your home. So you can escape the huge pressure that these aggressive creditors put on you.

Chapter 13 Conditions

These Chapter 13 benefits have important conditions and limits.

Chapter 13 DOES protect you and your home from the collection of the part of support that you are behind on as of the day your case is filed. That’s what you have up to 5 years to catch up on (although it’s often paid faster to get it out of the way).

But Chapter 13 does NOT stop collection of ongoing monthly support payments (assuming that you continue to owe them). So you have to continue paying ongoing support.

It’s extremely important that you DO you pay those regular monthly payments during your Chapter 13 case. That’s because if you don’t keep making those ongoing support payments you could easily lose the protection Chapter 13 otherwise provides you against collection of the support that was owed as of the date your case was filed. You have to pay your ongoing support or else your ex-spouse and support enforcement agency would have grounds to resume collection action on that support arrearage. That would likely include the ability to foreclose on the lien against home, plus all of the other aggressive collection actions the law allows.

It’s also extremely important to keep up on the monthly “plan payments,” the amount you have agreed to pay monthly to the Chapter 13 trustee to distribute to your creditors. Those payments include money earmarked for catching up on the unpaid support. So if you don’t make any of those Chapter 13 payments, the trustee, your ex-spouse and/or support enforcement agency could inform the bankruptcy court that you are not catching up on the support payment as agreed. Then you could lose the protection you’d filed the Chapter 13 case to get.

But the Benefits Make this Worthwhile

The protection and flexibility provided to you by Chapter 13 really is extraordinary.

During your Chapter 13’s 3-to-5-year payment plan, you usually pay only a part of your overall debts. You often pay only a relatively small part of most of your debts so that you can focus on certain more important ones, such as the support arrearage. You may even pay nothing on most of your debts so that you can pay one or a few other debts.

As mentioned above, you are usually given the entire length of your case to catch up on your support arrearage. The amount of time is huge compared to what most ex-spouses and support enforcement agencies would otherwise allow.

You also generally can pay other important debts—such as unpaid home mortgage and/or vehicle payments—ahead of or at the same time as you are catching up on support.

The amount that you pay to catch up on support during your Chapter 13 case often just reduces dollar-for-dollar the amount you pay on most of your other debts. That’s because in most cases the amount you pay each month, and therefore the total you pay over the life of your payment plan, is based on what you can afford to pay. With usually a fixed amount going towards all of your debts, what you are paying to catch up on support just reduces how much you pay on most of your other debts.

Again, as long as you continue doing what you need to be doing, your ex-spouse/support enforcement can’t enforce the support lien nor take any other action to collect the support arrearage. Then at the end of the case you will be current on your support, and the lien will be released from your home.

 

A Fresh Start with the Child or Spousal Support Lien on Your Home

February 5th, 2016 at 8:00 am

The good news is that if you are behind on child or spousal support, with a resulting lien on your home, you can safely protect that home.

 

If you are behind on your support payments, your ex-spouse and support enforcement agencies have tremendous tools to use against you to try to force you to catch up. And if you own a home, those tools include the support lien that is very likely imposed on your home’s title. Chapter 13 “adjustment of debts” gives you a powerful tool with which to fight back.

Child/Spousal Support and Bankruptcy

Bankruptcy is admittedly limited in its ability to help deal with child and spousal support debts. But the way it can help sometimes makes all the difference.

Chapter 7 “straight bankruptcy” is not able to directly help other than to free up money so that you can better afford to pay any ongoing monthly support, and to catch up on any previously unpaid support. Any lien that you might have on your home remains throughout that time. And you have no protection from collections under that lien.

However, Chapter 13 DOES stop the collection of any support that you are behind on as of the date the case is filed. The court-approved payment plan can give you a very flexible way to catch up on what you owe. And unlike with Chapter 7, you get “automatic stay” protection from collection by your ex-spouse and support enforcement, including through the support lien on your home. So you can escape the huge pressure that these aggressive creditors often put on you. Howevr, this huge benefit comes with conditions and responsibilities, so you have to really understand and follow the rules.

The Rules under Chapter 13

Chapter 13 protects you and your home from the collection of accrued unpaid support, giving you up to 5 years to catch up.

But Chapter 13 does not stop collection of ongoing monthly support payments. So you have to continue paying those if you are still required to do so according to the state family/divorce court.

In fact it’s crucial that you pay those regular monthly payments. You must do so unless and until you reduce or eliminate that monthly support obligation through the family/divorce court. It’s crucial because if you don’t keep making those ongoing payments perfectly, you jeopardize the protection Chapter 13 otherwise provides you on collection of the accrued back support debt you owe. If you don’t pay your ongoing support, your ex-spouse and support enforcement agency will have grounds to resume collection action on that support arrearage. That would include foreclosing on the lien against home and any of the other aggressive collection actions the law normally allows against you and your assets.

The rules also require your Chapter 13 court-approved payment plan to include enough money being paid to your ex-spouse or support enforcement agency to pay off the support arrearage within the 3-to-5-year life of the payment plan.

And besides earmarking enough money in the plan, you must also actually pay the required payments into that payment plan throughout its life. If you don’t make the agreed and court-ordered Chapter 13 payments, you’re not catching up on the support payment like you’re supposed to, and so you’d likely lose the protection you’d filed the Chapter 13 case to get.

But If You DO Play By the Rules

Chapter 13 gives you time to catch up based on your budget.

During Chapter 13’s 3-to-5-year payment plan, you usually pay only a part of your overall debts. You often pay only a relatively small part of, or maybe nothing at all on, many of your debts. You would usually have the entire length of your case to catch up on your support arrearage. The time you have to catch up is very generous compared to what most ex-spouses and support enforcement agencies would otherwise allow.

You also generally can pay other high-priority debts ahead of or at the same time as you are catching up on support. For example, you can often make payments on a vehicle or mortgage arrearage either ahead of or at the same time as making payments on the back support.

The reason you usually pay most of your other debts less and sometimes nothing is that, while you must pay the full support arrearage with many of your other creditors you only pay as much, if anything your budget says you can afford to pay. So the amount that you owe in support arrearage often just reduces dollar-for-dollar the amount you pay to most of your other creditors.

And throughout this time your ex-spouse/support enforcement can’t enforce the support lien nor take any other action to collect the support arrearage.

Conclusion

So, if you play by the rules you and your home will be protected from a support lien foreclosure. And as long as you follow those rules you’ll be protected from all other support enforcement actions as to your accrued support arrearage throughout the three to five years that your Chapter 13 case is active. Then at the end of the case you’ll be current on your support.

If at that time you continue to owe ongoing monthly support, the support lien would likely remain but would cover only that ongoing support. Or if by that time you no longer owe monthly support, that support lien would be taken off your home at the completion of your case.

 

Chapter 7 and Chapter 13–Child and Spousal Support

November 6th, 2015 at 8:00 am

Unpaid support is the highest priority of the “priority” debts. Chapter 7 frees up money to pay it. Chapter 13 buys you time to do so.

 

In our last blog post we said that, very broadly speaking, if none of your unsecured debts are “priority” ones, you’d lean towards filing a Chapter 7 “straight bankruptcy” case.  And if you did have a “priority” debt, or more than one, and the amount owed is relatively large, you’d lean towards filing a Chapter 13 “adjustment of debts” case.

The reason is that Chapter 7 usually discharges (legally writes off) ordinary unsecured debts quickly, but doesn’t have much power over “priority” debts like Chapter 13 does.

A debt for unpaid child or spousal support provides a great example.

Ongoing vs. Past-Due Support

Let’s first make clear what debt we’re talking about. We’re NOT talking about trying to change child or spousal support obligations that are not yet due. You have to go back to the domestic relations court to change (reduce or eliminate) your support obligations going forward, if you have grounds to do so.

Instead the debt we’re talking about is the amount of support that is past-due at the time you file your bankruptcy case.

The Sacred Debt

Other kinds of “priority” debts can be discharged under certain circumstances. For example, past-due income taxes can usually be discharged after just waiting a few years.

But not past-due support. It cannot be discharged at all in either a Chapter 7 or Chapter 13 bankruptcy.

So can either bankruptcy help here at all?

Some but Very Limited Help in Chapter 7

The only way Chapter 7 helps is indirectly, by discharging all or most of your other debts so that you can afford to catch up on your unpaid support.

In some circumstances you or your attorney can negotiate terms for catching up with your ex-spouse or with the support enforcement agency handling the matter. If getting rid of your other debts gives you the financial ability to enter into such a negotiated arrangement, Chapter 7 would be the way to go.

Chapter 7 Limitations

But often there isn’t room for negotiation. The ex-spouse or support enforcement agency may be no longer willing to negotiate payment terms. Or, filing a Chapter 7 case may not free up enough money in your monthly budget to catch up as needed. Sometimes you have other troublesome debts—a mortgage heading for foreclosure, income taxes, student loans, a past-due vehicle loan—which continue being owed after you’d finish your Chapter 7 case. They would suck up your money not leaving enough to cure your past-due support debt fast enough.

The huge related practical problem is that Chapter 7 does nothing to stop your ex-spouse or support enforcement from continuing or starting collection efforts against you. The “automatic stay” which stops most other creditor collection efforts does not apply in Chapter 7 to support obligations. So you have no leverage and no protection.

Significant but Conditional Help in Chapter 13

That’s the big difference with Chapter 13. IF you strictly follow certain conditions, the collection of past-due support obligations IS stopped by a Chapter 13 filing. And they continue being stopped throughout the 3-to-5-year course of the Chapter 13 case as long as those conditions continue being met.

The conditions are:

  1. The Chapter 13 payment plan earmarks enough money to pay the back support debt in full.
  2. You pay any ongoing monthly support payments on time, especially the first ones due after the Chapter 13 case is filed.
  3. You pay your monthly Chapter 13 plan payments on time throughout the case, since that’s how the past-due support payments will be paid.

If you follow these conditions your ex-spouse and the support enforcement agency will not be able to take any collection actions against you during the case. And by the end of the case you’ll be current on the support, and will be free and clear of all other debts other than any still ongoing monthly support and perhaps other long-term debt (such as a home mortgage).        

 

Chapter 7 and Chapter 13–Unpaid Child or Spousal Support Lien on Your Home

October 23rd, 2015 at 7:00 am

One of the most important distinctions between these consumer bankruptcy options are how they help or don’t help with support arrearage debt.

 

 

Support Liens

If you are behind on your child or spousal support payments and you own a home, most likely there is a lien on that home for that unpaid support debt. This means that your ex-spouse (or the support enforcement agency in his or her name) may be able to foreclose on your home through that lien. In any event, the lien is a cloud on your title, very likely hurting your credit and potentially jeopardizing your ability to refinance or sell the home.

The support lien came about one of two ways (or possibly both).

First, your divorce decree is usually in the form of a court judgment, and so creates a continuous judgment lien for whatever amounts is then outstanding on the court-ordered support obligation. Each month that you fall further behind on support payments increases the amount of the debt that is secured by the judgment lien.

Second, under most state laws falling behind on support payments is itself grounds for your ex-spouse or support enforcement agency to record a support lien on any real estate that you own. This support lien often gives the ex-spouse or agency greater ammunition against you than a simple judgment lien would.

The Sacredness of Support Obligations in Bankruptcy

What bankruptcy can do for you if you are behind on support payments is limited, but what it can do could still be extremely helpful to you.

Support debts are treated with great deference by the bankruptcy laws. You can’t write off any child or spousal support through bankruptcy, either the regular monthly payments or any accrued unpaid support. That’s true of both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” types of bankruptcy. Only the divorce court can change the amount of your ongoing support payment. These courts essentially only do so as to future payments, so they don’t relieve you of any accumulation of prior support payments.

Ongoing Support

In addition neither Chapter 7 nor 13 can stop collection of ongoing monthly support. Again, only the divorce court has power over that. Bankruptcy Court is a federal court, and under our federalist system of government domestic relations matters are left to the state courts. In matters such as child and spousal support the federal bankruptcy courts simply don’t intervene.

Protection from Support Lien Enforcement of the Accrued Arrearage

 While Chapter 7 doesn’t provide any protection from support collection efforts on accrued support arrearage, Chapter 13 does.

If you owe a chunk of support arrearage, filing a Chapter 7 case is not going to stop or delay any enforcement of a support lien against your home based on that support arrearage debt. But filing a Chapter 13 case instead is completely different. If there’s a support lien on your home that is under threat of being foreclosed, Chapter 13 stops that at once.

More importantly, if you play by the rules you will be protected from a support lien foreclosure AND all other support enforcement actions against you and your home during the full three to five years that the Chapter 13 case is active. Best of all, you have this three-to-five year period to catch up on the unpaid support payments so that by the end of the case you are current on your support. If the support lien on your home was imposed for being late on support payments, when you’re current that lien will come off your home’s title.

Playing by the Rules

Recall that even Chapter 13 doesn’t stop collection of ongoing monthly support payments. So you have to continue paying those if your divorce decree obligates you to.

Indeed it’s absolutely crucial that you pay those regular monthly payments (unless and until you reduce or eliminate that obligation through the divorce court). It’s crucial because if you don’t keep making those ongoing payments perfectly, your ex-spouse or support enforcement agency will have grounds to resume collection action on the support arrearage. That would include foreclosing on the lien against home and any of the other aggressive collection actions the law allows against you and your assets.

Beyond that, the rules also require your Chapter 13 court-approved payment plan to earmark enough money to pay off the entire support arrearage within the life of the payment plan. You must also actually pay the required payments into the payment plan throughout the life of the plan.

If you don’t do fulfill any of these obligations your ex-spouse or support enforcement agency will very likely ask the bankruptcy court for permission to collect on the support arrearage by foreclosing on the support lien or through other collection actions against you.

On the other hand, if you do play by these rules you get the advantages laid out above—a substantial amount of time to pay off the support arrearage, protection for your home (and other assets) from enforcement of the support lien, and under the right circumstances a release of that lien once you catch up on the support arrearage.

 

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