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Archive for the ‘support enforcement’ tag

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.

 

Chapter 7 with a Judgment Lien, HOA Debt, or Support Obligations

December 1st, 2017 at 8:00 am

Here are 3 more scenarios for when you are current on your mortgage, where Chapter 7 works well in dealing with other home-related debts.


Our last blog post was about situations in which Chapter 7 works well enough in the following 3 debt situations:

  1. Second or third mortgages
  2. Property taxes
  3. Income tax with a lien recorded on your home

In general, if you are current on your first mortgage but have any of these 3 debts, sometimes Chapter 13 helps much more than Chapter 7. But last time we showed scenarios when you don’t need the extra time and expense of Chapter 13.

We do the same today with the following 3 other home-related types of debts:

1. Judgment with a lien attached to your home

2. Homeowner association debt with a lien

3. Child/spousal support unpaid with a lien

Judgment Liens

In bankruptcy you can often remove a lien on your home arising from a creditor’s judgment against you. That’s important because otherwise the lien would continue on your home’s title even after you discharge (legally write off) the underlying debt.

Whether you can remove, or “avoid,” the judgment lien depends on the value of your home, the amount of its equity, and amount of your applicable homestead exemption. If all of the judgment lien “impairs,” or cuts into, your homestead exemption, you can remove that lien.

For example, assume your home is worth $200,000, you owe $175,000 on the mortgage, so you have $25,000 in equity. Your state’s homestead exemption is $30,000, covering all of your equity and more. You have a judgment lien on your home’s title in the amount of $10,000. All of that $10,000 cuts into the equity that’s protected by your $30,000 homestead exemption. So you can “avoid,” or remove the entire judgment lien in bankruptcy.

There are some tools affecting liens that are available only in Chapter 13, not in Chapter 7. This is not one of them. You can “avoid” a judgment lien under the same rules in either Chapter 7 or 13. So this is not a deciding factor between these two bankruptcy options.

Homeowner Association Lien

State laws differ on homeowner association liens. But in general not being current on your HOA dues and/or assessments can be a significant problem. It can catch you by surprise. So be sure to tell your bankruptcy lawyer if you are paying HOA dues or assessments. Of course be sure to tell if you are not current on them.

One of the reasons these liens are dangerous is that under some circumstances they are superior to your mortgage on your title. Falling behind is likely an independent basis for foreclosure by your mortgage lender—even if you’re current on the mortgage itself. Also, the timetable for action by your HOA may be quick compared to a home lender’s foreclosure.

If you have monthly HOA dues and you’re current on them, and intend to stay in the home, filing a Chapter 7 case should be fine.

But if you’re at all behind with your HOA and don’t have an agreed payment plan to catch up, talk with your lawyer about your options, including Chapter 13. You’d very likely have more time and flexibility in catching up and keeping your home protected while doing so.

Child/Spousal Support

Often, being behind on support creates a lien against your home. That may even happen when you’re current (through the judgment arising out of your divorce decree).

Filling a Chapter 7 case should be fine if you are current on all support obligations at time of filing. If you are not current but expect to be very shortly thereafter, be aware that filing a Chapter 7 case does NOT freeze the collection actions of any support obligations—neither ongoing monthly ones nor those in arrears.

However, Chapter 13 CAN stop the collection of support obligations that are in arrears. Those collections can be unusually aggressive—sometimes resulting in even the loss of your driver’s license, or possibly your occupational or professional license. So knowing that Chapter 13 can freeze collections and buy you time to catch up is important. If this debt is causing you serious problems this may be reason enough to choose Chapter 13.

 

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.

 

Making Sense of Bankruptcy: 5 More Powerful Ways Chapter 13 Saves Your Home

August 17th, 2015 at 7:00 am

Here are 5 additional tools that come with Chapter 13, each one neatly solving a different challenge to your home.

 

Here’s a summary of today’s blog post:

Adding to the 5 tools in our last blog post, today’s 5 include: 6) protecting your home equity if it’s greater than the homestead exemption, 7) giving you much more time to live in your home before selling it, 8) dealing effectively with child/spousal support liens against your home, 9) resolving an income tax lien on dischargeable income taxes, and 10) preventing foreclosure from overdue property taxes.

6. Avoid a Chapter 7 Trustee from Taking Your Home for Having Too Much Equity

If you have more equity in your home than the homestead exemption allows, you risk losing your home if you file a Chapter 7 “straight bankruptcy” case. The homestead exemption amount can differ state to state. Chapter 7 trustees have a lot of discretion about pursuing assets, and so it’s difficult to predict how aggressive yours will be about your home. If the amount of your equity is anywhere close to the homestead exemption maximum, you take a risk in filing a Chapter 7 case.

In contrast, Chapter 13 “adjustment of debts” provides a much more predictable procedure for determining the value of a home, one which relies less on the whim of a trustee. And more importantly Chapter 13 provides a mechanism to protect the value of the home if it is in excess of the homestead exemption. That mechanism often involves paying extra to your creditors over the course of your overall payment plan in return for being able to keep your home and its too-much equity. But in some cases you don’t have to pay anything extra—overall the creditors just need to get paid no less than what they would have received in a hypothetical Chapter 7 “liquidation” case.

7. Get Lots More Time to Sell Your Home

If you have decided to sell your home but are now or expect soon to be under threat of foreclosure, Chapter 13 usually gives you much more time to sell than would a Chapter 7 filing. That means you’d have more market exposure, which gives you a better chance at selling at a better price. That’s especially true if you are being forced to sell during a traditionally slower time of the year, or are trying to sell on a short sale (in which the house is worth less than the amount of the mortgage(s) against it).

If you are behind on your mortgage payments and have a foreclosure scheduled, filing a Chapter 7 case will usually only buy you an extra three months or so. It may even get you less time if the creditor decides it wants to put pressure on you. Instead, in a Chapter 13 case you can usually stay in the home by making your regular monthly mortgage payments plus some progress towards paying the arrearage as you wait to sell your home. Or if there is enough equity in the property you likely wouldn’t have to pay any of the arrearage until the house sold and the entire balance owed to the mortgage lender would be paid from the proceeds of the sale.

8. Deal Effectively with a Child/Spousal Support Lien against Your Home

Filing a Chapter 7 case does nothing to stop collection efforts against you if you are behind on your child or spousal support obligations. This could be a problem for your home in two ways, both of which are solved by instead filing a Chapter 13 case.

First, support obligations usually turn into liens against the real estate you own, including your home. This gives your ex-spouse the ability to force the sale of your home to pay the support arrearage.

So assuming that a lien for unpaid support was already attached to your home before your bankruptcy is filed, Chapter 13 would stop the execution of that lien as long as you comply with your court-approved payment plan. Your plan must show how you are going to pay that support arrearage before your case is completed, and you must stay current on those payment obligations (plus any ongoing support payments). But as long as you do all this, the support lien cannot be executed against your home. Instead after the underlying support debt is paid off through your Chapter 13 payment plan, the lien would be released, with no further risk to your home.

Second, if no support lien has been placed yet on your home, Chapter 13 would prevent that from happening. Instead you’d have the opportunity to pay off the support arrearage while under bankruptcy protection, avoiding the need for a lien to be placed on your home.

9. Deal with a Recorded Tax Lien on a Dischargeable Income Tax

You may owe an income tax for which a tax lien has been recorded against your home. If the underlying tax is old enough and meets other conditions to be discharged (legally written off in bankruptcy), then dealing with the lien is likely much better under Chapter 13 than 7. Depending on the amount of equity you have in your home, under Chapter 7 the IRS or other tax authorities may well not release the tax lien even after the underlying tax debt is discharged. You may need to pay the tax anyway, or a substantial amount of it, to get the lien released.

In a Chapter 13 case, in contrast, there is an efficient court procedure for determining the value of that lien, and for paying it. As a result, at the completion of your case the tax debt is discharged and its lien is released.

10. Past Due Property Taxes Also Handled Well under Chapter 13.

If you are paying your home’s property taxes as part of your mortgage payment, and you’ve fallen well behind on those mortgage payments, your lender may have paid some of your past due property taxes with its own money. It does that to avoid a property tax foreclosure by the county or other tax authority, through which it would lose its own rights to your home (as would you).

If the lender did pay the past-due taxes, it would have added the amount of taxes paid to the total amount that you are behind to it. Your contract with your lender almost certainly allows it to do that. Then you would have the length of your Chapter 13 plan to pay your lender that tax amount, in the same way that you would catch up on the back mortgage payments.

If your mortgage lender hasn’t yet paid an overdue property tax, you would pay that tax directly to the county or other tax authority over time in your Chapter 13 payment plan. Your home would be protected from tax foreclosure in the meantime. So your lender would not be able to use the overdue property tax as justification to do its own foreclosure, as long as you make consistent progress on catching up, as well as keep current on new property taxes as they come due during your case (as well as kept up on the mortgage itself).

In the same way, if you pay your property taxes paid directly to the county or other tax authority (not through your mortgage lender), and you’ve fallen behind, your Chapter 13 plan would include payments to that tax authority until you were caught up.

 

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