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Archive for the ‘Child And Spousal Support’ Category

Paying Unpaid Child/Spousal Support before Bankruptcy

July 6th, 2020 at 7:00 am

Before filing bankruptcy, should you pay child/spousal support debt in the meantime? This may depend on whether you file Chapter 7 or 13.


Our last three blog posts have been about what you should and should not do before filing bankruptcy. Three weeks ago we focused on keeping your assets, especially any retirement funds, and collateral, such as home or vehicle. Two weeks we discussed whether to take on more debt, maybe to buy time and not need to file bankruptcy. And last week we looked at whether you should file any unfiled income tax returns, and pay income taxes.

Today the question is whether to pay unpaid child/spousal support before filing bankruptcy. As with all of these issues, there are some general principles worth getting to understand. But everybody’s situation is truly unique. So you really do need the help of an experience bankruptcy lawyer to apply these principles to your personal situation. This blog post can be the first step towards becoming well-informed about your options. It’ll help you ask the right questions so that you can make the best decisions.

Child/Spousal Support Collection

If you haven’t already learned the hard way, the collection of child and spousal support can be extremely aggressive. If you are behind on support, your ex-spouse and the support enforcement agency have tremendous tools to use against you to make you catch up.

In virtually all states an ex-spouse—or the local support enforcement agency—has extraordinary ways to collect unpaid support.  

These include ways of grabbing your money directly. We’re talking garnishing your wages and bank accounts, and grabbing income tax refunds.

But the collection tools also include ways to hurt you so that you’ll be forced to pay. Your ex-spouse and support enforcement can often put liens on your possessions and your real estate. Your ex-spouse/support enforcement might then take these assets to sell and pay the support debt. They can often suspend your driver’s license. This includes a commercial driver’s license, so you can’t work if have a job requiring the license. They can even suspend your professional or occupational license. That could prevent you from legally working in your profession or business as a nurse, doctor, physical therapist, lawyer, realtor, insurance agent, mortgage broker, etc.

On top of all this, you could lose your hunting, fishing, boating and other recreational licenses. You could even be ineligible to receive a U.S. passport.

Bankruptcy Doesn’t Discharge Unpaid Child/Spousal Support

No form of bankruptcy can discharge (legally write off) unpaid child/spousal support. So you might as well prioritize paying the support, right? Maybe.

Stopping Support Collection

Also, Chapter 7 “straight bankruptcy” does not directly stop, or even pause, any of the above forms of support collections. Even more reason to put every dime into catching up on the support, right?

Maybe. But first be aware that Chapter 13 “adjustment of debts” CAN stop the collection of unpaid support. Furthermore, a Chapter 13 official payment plan can give you 3 years, or often as much as 5 years to catch up on any child/spousal support. Under the right circumstances you can be protected from support collection throughout those years of catching up.

So when on the brink of bankruptcy, it might make practical sense to not pay a support payment. It may make sense to pay that unpaid support over time instead. You might need to use your precious money for some other extremely urgent purpose.

This may be sensible if you are currently not being hit with ongoing support collection efforts. It would also be important that you don’t have reason to believe such efforts are imminent. Given how aggressive those efforts can be, this is a delicate calculation.

Determining Whether Chapter 13 Is Right for You

Be aware this particular scenario of not paying support only makes sense if you end up filing under Chapter 13.

As stated above, only Chapter 13 stops the collection of unpaid support arrearage. The more common Chapter 7 type of bankruptcy does not.

(Note that your obligation to pay ongoing monthly support after filing the Chapter 13 case continues. So collection of the ongoing monthly support can continue.)

Only Chapter 13 gives you a protected and extended method of catching up on your unpaid support. Chapter 7 leaves you at the mercy of your ex-spouse/the support enforcement agency, and their collection tools listed above.

The decision whether to file a Chapter 7 vs. Chapter 13 one is always a multi-faceted one. The Chapter 7 procedure itself is usually less expensive and takes much less time. But Chapter 13 gives you much stronger tools, not just with unpaid child/spousal support. If you’re behind on a mortgage, are in a difficult vehicle loan, owe income or property taxes, and many other challenging situations, Chapter 13 can work legal miracles.

Whether these powerful tools are worth the extra money and time is a multi-faceted decision. It’s one that definitely requires legal advice.

An Urgent Decision

By its very nature, whether or not to pay a child/spousal support payment is a very urgent decision. If you are in the midst of support collection efforts, those efforts are likely causing you significant financial pain. If that’s not happening yet, they can occur at virtually any time. You have to make some big decisions quickly.

The initial meeting with a bankruptcy lawyer is usually free. The sooner you get that initial legal advice the sooner you’ll know whether you should pay the child/spousal support. The sooner you will feel the relief of knowing where you’re heading. The sooner you will be turning the corner to a calmer financial life.

 

A Chapter 13 Plan to Catch up on Past-Due Support

February 3rd, 2020 at 8:00 am

Here’s an example of a Chapter 13 payment plan to pay past-due child and/or spousal support, showing how you can catch up safely and sanely

 

Today we put what we explained in the last three weeks of blog post into a sample Chapter 13 plan. It shows how powerfully Chapter 13 helps you if you owe past due child and/or spousal support. A Chapter 13 filing protects you from the aggressive collection of overdue support, immediately and as long as needed. And through the Chapter 13 payment plan you get a reasonable and even peaceful way to catch up on support.

The Example

Assume you’ve fallen behind on both child and spousal support because your income was interrupted. You owe $6,000 in past-due support. You’re back at work so you can now pay your ongoing monthly support but have no way to catch up. You have too many other debts.

Your ex-spouse’s support enforcement agency is poised to garnish your wages for the past-due support. If they did so you wouldn’t be able to pay your vehicle loan payment and you’d lose your vehicle.

Assume that the divorce decree requires you to pay $900 in monthly child support and $600 in monthly spousal support, $1,500 total, for 5 more years. So the $6,000 in past-due support represents 4 months of missed payments.

You got a good deal on the vehicle loan. So the vehicle is worth about as much as you owe on it—$10,000. Your monthly payments are $425 per month, with 25 more payments to go.

Besides the $5,000 in past-due support and the vehicle loan, you owe $95,000 in other debts. These other debts are all unsecured credit cards and medical bills—“general unsecured debts” under bankruptcy law. If you pay the monthly payments on the credit cards you have no money left for the medical debts, much less the $1,500 in ongoing support payments. You are in a very tight financial box.

Chapter 13 gets you out of that box fast, and solves these problems permanently.

Your Chapter 13 Budget and “Disposable Income”

Filing a Chapter 13 case stops the collection of past due support immediately. See our blog posts of 2 and 3 weeks ago about this works and the conditions you must meet. See the blog post of last week about how the Chapter 13 plan gives you a safe and flexible way to catch up on the support. Today’s example brings all this together.

In a Chapter 13 case you and your bankruptcy lawyer put together a monthly budget of your income and expenses. That budget gives you money to pay your ongoing monthly support as well as you own reasonable expenses. See Subsection 1325(b)(2)(A)(i) of the U.S. Bankruptcy Code.

The amount left over is your monthly “projected disposable income.” See Section 1325(b)(1)(B)  of the Bankruptcy Code.

The way this works is your monthly expenses exclude any debt payments. Your expenses DO include the $1,500 in child and support payments since that’s a required ongoing expense. But your expenses don’t include any money for the past-due support since that part is a debt.

Your expenses for determining your disposable income also don’t include the $425 vehicle loan payment. That is of course a debt as well.

Assume that after subtracting all of your monthly expenses (including the $1,500 in support) your monthly “projected disposable income” is $500. You commit to paying that amount to all of your creditors for the following 3 years in your Chapter 13 payment plan.  

The Chapter 13 Plan

Paying $500 per month for 3 years would in most situations be enough to take care of all your debts. This includes the $6,000 in past-due support. At the end of 3 years you would have paid off the vehicle loan, caught up on the support, and be free and clear on all your other debts.

How could this be when you owe $425 per month on just your vehicle loan? And what about the $95,000 in credit card and medical debts? How could just $500 per month over 3 years cover ALL of these debts?

This is possible for the following main reasons. Chapter 13 usually allows you to:

  1. Delay paying the past-due support until your plan pays certain other debts first—here the vehicle loan.
  2. Pay the general unsecured debts only as much as you have disposable income to pay them. The rest is forever written off (“discharged”).

In this present example $525 per month for 36 months provides a total of $18,900 to pay on all the debts. About $10,665 of that would go to the $10,000 vehicle loan (the extra amount being interest). $6,000 would go to pay the past-due support.

That leaves $2,235. The Chapter 13 trustee (who receives and distributes your $525 payments) gets a fee. In this case assume 5% of every dollar that flows through the plan, or $945 here.

That now leaves $1,290. Your bankruptcy lawyer gets paid out of your plan to the extent you didn’t pay him or her in advance. Most or all of that $1,290 would like go to your lawyer.

This leaves nothing for the $95,000 in general unsecured debts. In many circumstances that’s allowed. It’s called a 0% Chapter 13 plan—paying the general unsecured debts 0% of the debt amounts.

The Result Here

In this example you could stop paying all your debts when you filed your Chapter 13 case. Support enforcement would immediately stop as to the past-due support. All other collection of debts would stop as well. You would have a budget enabling you to take care of all your reasonable and necessary expenses. That would include your ongoing monthly support obligations. You would protect your vehicle loan and your vehicle.

After 3 years you’d have paid off your vehicle loan, caught up on support, paid all expenses of the Chapter 13 case, and paid nothing on the general unsecured debts and yet no longer owe anything on them. This is an incredibly good result.

Other Possibilities

In many circumstances Chapter 13 gives you results this good as to your past-due support and otherwise. But in other circumstances Chapter 13 is extremely helpful yet not as perfect results. For example, your case may take longer than 3 years—it can be as long as 5 years. You may have to pay general unsecured debts something instead of nothing, sometimes even a significant percentage. This blog post has been long enough so we’ll look at such other scenarios next week.

 

Catching up on Support through Chapter 13

January 27th, 2020 at 8:00 am

Chapter 13 gives you a powerful, reasonable, flexible, and even calm procedure for catching up on your past-due child or spousal support. 

 

The last two weeks we’ve shown how Chapter 13 can stop the collection of unpaid child and spousal support. First we talked about how this benefit is much better than Chapter 7 can provide. Then we focused on the ongoing conditions you must meet to keep up this protection.

But there’s a second benefit of Chapter 13 that deserves attention. It doesn’t just stop the collection of unpaid support. Chapter 13 provides a powerfully flexible way to catch up on that support debt.

Why This Is a Huge Benefit

Whatever child or spousal support you owe at the time of your bankruptcy filing, you can’t write off (“discharge”). It’s among the relatively few kinds of debts that bankruptcy does not discharge under any circumstances. See U.S. Bankruptcy Code Sections 523(a)(5) and 101(14A). So you have to pay it, whether you file bankruptcy or not. Whether you file Chapter 7 or 13 or any other kind of bankruptcy.

So this is a debt you have to pay. The issue is what is the easiest, most financially sensible and low-stress way to do so. 

As we discussed in our blog post 3 weeks ago, Chapter 7 doesn’t help much. It doesn’t stop the collection of unpaid support at all. You’re on your own catching up on any unpaid support.

Chapter 13 does stop the collection of unpaid support immediately, and continues to protect you as long as you meet some ongoing conditions.  What Chapter 13 also does is provide you the tool to pay off the support debt. That tool is a court-approved payment plan for all your debts, based on what you can actually afford to pay. That payment plan enables you to catch up on your support debt over time. The plan works into your budget all your other debts—especially other debts very important to you. So you can catch up on your support at a sensible pace without being hounded about it.

How the Chapter 13 Payment Plan Works

How could this possibly work in real life? Consider the following:

  1. The Chapter 13 payment plan is based on your actual income and reasonable expenses.
  2. The plan prioritizes debts in a way that’s generally in your favor.
  3. Other debts sometimes get your money ahead of the support debt, usually to your benefit.
  4. You have 3-to-5-years to catch up on all your unpaid support debt.

We’ll take these four one at a time.

1. Based on Actual Income and Expenses

The Chapter 13 payment plan usually involves a single monthly payment to all of your creditors. (Although sometimes a special debt is paid separately, like a home mortgage.) That single monthly payment is based on what you can actually afford to pay. It’s based on your actual income and reasonable expenses. The income is a projection based on your very best estimate of how much you’ll make each month. The expenses try to cover all your expenses, including ones that don’t happen every month. (For example, vehicle maintenance and repairs, and medical expenses.)

The point is to determine how much you can truly and reasonably afford to pay monthly in a sustainable way. It should not cause you anxiety. You should feel confident that you can fulfill your payment plan.

2. Prioritizing Debts

A Chapter 13 plan basically divides debts into those you must pay in full and those you pay only as much as you can afford to pay. 

The unpaid support debt is in the first category. This category may also include other such must-pay debts like recent income taxes. It can also include secured debts like vehicle or mortgage obligations.

The second category usually includes all other debts—your “general unsecured” debts. These you usually pay only as much as you can, if there’s any money left over for them at all.

So Chapter 13 lets you focus your limited financial resources on those debts that you need to pay. And it gives you an extended time to pay them, so that you can afford to do so.

3. Paying Other Debts Ahead of Support

Outside the protection of Chapter 13, arguably no debts come ahead of unpaid support. That’s because the law makes the support enforcement collection tools so powerful.

But within the protection of a Chapter 13 case and plan, those aggressive collection tools are tamed. So you don’t necessarily pay an unpaid support debt first in the plan. You may have other debts—especially a secured debt or two—that you can pay first. So if you are behind on your mortgage, or doing a cram-down on your vehicle loan, you can often pay these ahead of your support debt.   If you owe other “priority” debts like recent income taxes, your plan usually pays your support debt along with such other important debts.

With Chapter 13 you’re not at the mercy of these important creditors. Your court-approved payment plan gives you a great way to deal with them all, including the support.  

4. Pay Off Unpaid Support by Case Completion

As mentioned, you have as long as 5 years to catch up on your unpaid support. Your official plan does need to include enough money to accomplish that (and everything else that must get paid). And you do need to fulfill the terms of that plan successfully to the end. Of course if you have an ongoing support obligation you have to keep paying that. (It will be included in your monthly expenses.)

Then by the end of your payment plan you will be current on your support. You’ll have paid off or gotten current on all your other special debts. Whatever you haven’t paid on your general unsecured debts will get discharged. And you’ll be free and clear of all debts.

 

Conditions for Stopping Support Collections in Chapter 13

January 19th, 2020 at 8:00 am

Chapter 13 immediately stops the collection of past-due child or spousal support. But to keep that protection you must meet some conditions.  


Last week we showed how Chapter 13 stops the collection of unpaid child and spousal support, while Chapter 7 doesn’t. But we ended by emphasizing that anyone can quickly lose this huge benefit of Chapter 13 “adjustment of debts”. Avoiding this requires strictly complying with some conditions. These conditions are arguably sensible ones. But you need to know and understand them so you don’t lose this crucial Chapter 13 benefit. Because these conditions are so important we focus today’s entire blog post on them.

Ongoing Child and Spousal Support

But before we get to these conditions we need to make a strong point. We’re talking here about child and/or spousal support that is unpaid, past-due, at the time of the bankruptcy filing. This past-due support is different from ongoing support. 

Ongoing support is the support you need to keep paying, usually on a monthly basis, after your bankruptcy lawyer files your bankruptcy case. Past-due support is any amount of support that you’re behind on as of that filing date.  Ongoing support is the support due after that filing date.

Filing bankruptcy does NOT stop the collection of any ongoing support, under either Chapter 7 or Chapter 13. The “automatic stay” that protects you from creditor collections does not apply. (See Section 362(b)(2)(B) of the U.S. Bankruptcy Code—where ongoing support is called “domestic support obligation.”) So, if you are paying support by direct payments, you need to keep paying those after filing bankruptcy.  If you are paying through a payroll deduction or by garnishment, those should continue. You can only change those forward-looking payments through the divorce court which ordered them.

Chapter 13 only stops the collection of past-due support—which, again, Chapter 7 does not. (Past-due support is also sometimes called support arrears or support arrearage.) So the conditions we discuss now are ones you need to meet to stop the collection of past-due support.

Inform Your Collector of Support

Your bankruptcy lawyer’s Chapter 13 filing will immediately stop the collection of past-due support.  This does assume that either you or your lawyer informs your ex-spouse or the support enforcement agency about your Chapter 13 filing. The automatic stay applies at the moment of filing, but the creditor needs to know about it to be able to comply. Coordinate this with your lawyer.

Most support enforcement agencies understand this special power of Chapter 13 and will comply immediately. Although sometimes it may take some lawyerly persuasion.

Ex-spouses are more likely under the misimpression that your Chapter 13 filing has no effect whatsoever on your support obligation. He or she probably has never heard about this special benefit of Chapter 13 for past-due support. If so, your lawyer will likely contact him or her, or his or her lawyer if there is one, to inform him or her about the law.  

The Conditions to Avoid Collection of Past-Due Support

Once the automatic stay stops collection of past-due support, you’ll lose this benefit if you don’t maintain the following conditions:

1) keep current on your ongoing support

2) show in your Chapter 13 payment plan how you will pay off all the support arrearage during the 3–to-5-year life of the plan

3) consistently make your Chapter 13 plan payments so that you are in fact making continued progress towards paying off the past-due support

4) finish your Chapter 13 case successfully, which includes paying off the entire past-due support

Let’s look at these one by one.

1) Keep Current on Ongoing Support

Assuming you continue to owe ongoing support, you absolutely must keep paying it as long as you are obligated to. Otherwise you’d be going financially backwards instead of forwards. You’d be called on it by the support enforcement agency or your ex-spouse. The very likely result would be that you’d lose the automatic stay protection against collection of the past-due support.

Plus you need to be very strict on the timing. You have to pay the monthly payments precisely by the due dates. Otherwise there’s a good chance that your ex-spouse/support enforcement will inform the bankruptcy court and ask permission to resume collection.

In particular be fully aware of the first support payment due after your Chapter 13 case filing date. For example, if your case is filed on January 25 and your monthly support payments are due on the first of every month, you need to make that first after-filing support payment by February 1. Talk with your bankruptcy lawyer about the timing of your Chapter 13 filing so that you have the funds to pay that first support payment.            

2) Payment Plan Includes Planned Pay-off

Bankruptcy law requires you to pay off all your past-due support during the 3–to-5-year life of the plan. Your Chapter 13 lawyer will make the necessary calculations to show how you will so so. Your monthly plan payments will be based on what you can afford to pay to all of your creditors. Incorporated into those monthly payments is money that will go to pay off the past -due support. You and your lawyer have to show that these plan payments are enough to accomplish this.

Otherwise your ex-spouse/support enforcement agency can object to the plan. He/she/it could also ask for permission to resume collections because the plan would not catch up on the past-due support.

3) Make ALL Chapter 13 Plan Payments 

Your Chapter 13 plan not only has to pencil out correctly, but you also must pay the plan payments timely. Otherwise you’re not doing what you agreed to do in the court-approved plan.  Paying the plan payments on time shows that you are actually making continued progress towards paying off the past-due support.

If you got late on the plan payments, your Chapter 13 trustee could ask that your case get thrown out. (The trustee is the person you pay your plan payments to, and who then pays your creditors.) Or any creditor—including your ex-spouse/support enforcement agency—could do the same. Or could just ask for permission to resume collection.

4) Finish Your Chapter 13 Case

So if you have a good payment plan, and you make all the payments, you’ll eventually complete it successfully. (Your plan very likely has some other requirements and this assumes you comply with them as well.) When you complete your plan, you will have paid off the entire past-due support. So it’s really important that you get all the way to the end of your Chapter 13 case successfully.

 

Unpaid Child and Spousal Support in Chapter 13

January 13th, 2020 at 8:00 am

Chapter 13 DOES stop the collection of unpaid child or spousal support from your after-filing income and other assets. Chapter 7 does NOT.    

Last week we discussed situations in which Chapter 7 would help if you’re behind on child or spousal support payments. We made clear that Chapter 7 “straight bankruptcy” provides only limited help. Mostly it gives you relief from your other debts so that you can concentrate on catching up on support.  Chapter 13 “adjustment of debts” is a much more powerful option when Chapter 7 is not enough.

The Main Benefits of Chapter 13 When Behind on Support

Chapter 13 takes much, much longer than Chapter 7, and is generally more expensive. But it provides some remarkable benefits compared to Chapter 7. These benefits can make the longer time and greater expense of Chapter 13 more than worthwhile. The main benefits of Chapter 13 are that:

1) Filing Chapter 13 immediately stops the collection of unpaid child or spousal support. Chapter 7 does not.

2) Chapter 13 gives you a relatively flexible and protected way to catch up on the support. With Chapter 7 you have to make your own payment arrangements, without any protection or much leverage.

Basically, have a serious conversation with your bankruptcy lawyer about Chapter 13 if you need these significant benefits.

How Does Chapter 13 Stop the Collection of Unpaid Support?

Chapter 7 is a very straightforward kind of bankruptcy. It focuses on a point in time: the moment your bankruptcy lawyer files your Chapter 7 case. Your case essentially imagines your financial life frozen in time at that moment, including your debts and assets, income and expenses, and such.

Chapter 13 also cares a lot about your financial life at the moment of filing. But it also takes a longer view—the next 3 to 5 years of your court-approved payment plan. In particular, Chapter 13 is designed to protect you during that period of time from your ongoing creditors.

Chapter 7 mostly just writes off (“discharges”) certain debts and does not discharge others. It leaves you on your own to deal with those debts you still owe, such as support.

In contrast, in Chapter 13 the protection from creditors—the “automatic stay”—can last the full 3-to-5 years.  Specifically regarding spousal and child support owed at the time of filing, the automatic stay protects your employment income earned after the filing. This means that as of your filing date your paycheck is protected from wage garnishment or other kinds of forced payment.

Why Doesn’t This Happen under Chapter 13 But Not 7?

Here’s the legal answer. (You can skip this section if you don’t need this level of detail.)

The pertinent federal bankruptcy statute states that the automatic stay does not stop the collection of support out of “property that is not property of the [bankruptcy] estate.” See Subsection 362(b)(2)(B) of the U.S. Bankruptcy Code.  This means that a bankruptcy filing does stop the collection from property that is “property of the bankruptcy estate.”

In a Chapter 7 case the bankruptcy estate is essentially everything you own at the moment of filing the case. See Subsection 541 of the Bankruptcy Code on “Property of the estate” generally. This does not include what you earn and assets you acquire after that moment. Since those after-filing earnings and assets are not “property of the estate,” they can be targeted for support collection.

Chapter 13 is different for a simple reason: “the estate” does include after-filing earnings and assets. Only under Chapter 13 the estate includes “earnings from services performed by the debtor after the commencement of the case.” See Subsection 1306(a)(2).

This means that the automatic stay legally prevents your ex-spouse or support enforcement agency from continuing or starting to collect on your unpaid child or spousal support you’re your after-filing earnings the moment your bankruptcy lawyer files your Chapter 13 case. This is true even though a Chapter 7 filing would have absolutely no such effect.

This Chapter 13 Protection Comes with Important Conditions

We said that the automatic stay can last the entire 3-to-5-year period of your Chapter 13 payment plan. But especially when it comes to unpaid support that protection comes with some conditions.

Why are there conditions? Imagine the example of a vehicle loan. You want to keep the vehicle and prevent your lender from repossessing it. The automatic stay can protect your vehicle under Chapter 13 during the entire length of the case. But you have to meet some reasonable conditions like making payments and keeping the vehicle insured. If you don’t, the creditor can get the court to exclude the debt from being covered by the automatic stay. It can get permission to repossess your vehicle after all.

It’s similar with child and spousal support debt. Here the conditions are very time sensitive and are often enforced very strictly. Being able to stop support collection is a huge benefit of Chapter 13. It may even be a major reason for choosing this more time-consuming option. You don’t want to lose this benefit because you didn’t clearly understand and comply with the conditions.

Because of how important these conditions are, we’ll dedicate all of next week’s blog post to them.

 

Unpaid Child and Spousal Support in Chapter 7

January 6th, 2020 at 8:00 am

Chapter 7 does not stop the collection of child or spousal support, nor provide any procedure to pay the support. It may still help enough.  


If you are behind on child or spousal support payments Chapter 7 may or may not be a good solution.

Chapter 7 “straight bankruptcy” is the most common type of consumer bankruptcy case.  It is more likely to be a sensible solution if 1) the support isn’t being collected aggressively and 2) you don’t owe terribly much. Why? Because:

1) Filing Chapter 7 does not stop collection of unpaid child or spousal support. Chapter 13 can.

2) Chapter 7 does not give you a procedure for catching up on the support. Chapter 13 “adjustment of debts” does so.

So why would you file a Chapter 7 bankruptcy if you were behind on support?

Filing Chapter 7 When Owing Support

Chapter 7 is usually the most straightforward type of bankruptcy. A case lasts only about 4 months from when your bankruptcy lawyer files it to when it’s completed. A Chapter 13 case involves a formal payment plan that almost always takes 3 to 5 years to finish.

As mentioned above Chapter 13 can stop the immediate collection of unpaid support, and give you time to catch up.

The much quicker Chapter 7 makes sense if you don’t need these kinds of help.

If you stopped paying the debts that Chapter 7 would discharge, could you quickly catch up on support? Would your ex-spouse be willing to accept monthly catch-up payments at an amount you could afford? Or if the debt is being collected by a support enforcement agency, would it accept such voluntary payments? Could you reliably make such payments, while presumably keeping current on the ongoing monthly support?

If you have a feasible way along these lines to catch up on your support obligation during and after your Chapter 7 case, then it may well be your best option.

Other Advantages and Disadvantages of Chapter 13

But you and your bankruptcy lawyer will discuss two other considerations revolving around your other debts.  Chapter 7 and Chapter 13 deal with debts quite differently.

The first consideration is about debts secured by your assets or other ones that you must pay. Secured debts include home mortgages, vehicle loans, and any others with a lien on anything you own. Debts you must pay—besides support—include recent income tax debts. Chapter 13 often handles these kinds of debts much better than Chapter 7. Without getting into the details here, Chapter 13 protects you while you pay such special debts as your budget allows. If you have such debts, how Chapter 13 helps with those may be reason enough to choose that option. Or this, along with the benefits it gives you with unpaid support, may swing you in that direction.

The second consideration is about the rest of your debts—those that are neither secured nor ones you must pay.  These are your “general unsecured” debts. Usually you can discharge (legally write off) all or most of such debts in either Chapter 7 or 13. In most Chapter 7 cases you pay nothing on your general unsecured debts. However, In a Chapter 13 case you often pay a portion of these debts. Whether and how much you pay on your general unsecured debts depend on lots of factors. The biggest factors are your income and expenses and the amount of your special debts (secured and otherwise) that you are paying in full. So you need to weigh the benefits of Chapter 13 regarding your unpaid support and other special debts against the likelihood that you would be paying something instead of nothing on your general unsecured debts.

What Happens to Your Unpaid Child/Spousal Support Debts in a No-Asset Chapter 7 Case?

A “no-asset” Chapter 7 case is one in which everything you own is covered by property exemptions. Exemptions usually allow you to keep certain dollar values of assets in various categories. Most Chapter 7 cases are “no assets” ones. If yours is, you’re able to keep everything (with the exception of collateral you decide to surrender).

In a no-asset Chapter 7 case your bankruptcy trustee does not get any of your assets to liquidate and pay to any of your creditors. (That’s why it’s called “no asset.”) Your bankruptcy lawyer will tell you if yours is expected to be.

Since the trustee doesn’t collect any money to pay your creditors anything, your support debts also receive nothing. So, a support debt gets no money directly from a no-asset Chapter 7 case. You have to deal with the support debt yourself (perhaps with the help of your lawyer), and be prepared to do so right away.

 

Avoid a Support Lien through Bankruptcy

September 23rd, 2019 at 7:00 am

Chapter 7 is very limited in helping avoid a support lien. Chapter 13 is much more powerful, as long as you precisely meet some conditions.

 

Child and Spousal Support Liens

If you fall behind on child or spousal support payments, your ex-spouse can put a lien on your home.  (Most likely a lien can be imposed on your other property, but we’re focusing here on your real estate). The procedures vary state to state, but generally the lien is filed wherever property is recorded. Most often that’s at the local county recorder’s office.

The lien gives legal notice about the support claim against you.  The lien goes onto the title to your house. It gives your ex-spouse power to make you pay when you sell or refinance the house. Sometimes the lien can force the sale of the house in order to pay the support debt. So you want to avoid a support lien whenever possible. Or at least stop its enforcement after it’s been recorded.

Does Bankruptcy Stop the Filing of a Support Lien?

“[A]ny “act to create any lien” is generally stopped by a bankruptcy filing. See Section 362(a)(4) and (5) of the U.S. Bankruptcy Code about the “automatic stay.” The filing of a support lien is an “act to create… [a] lien.” So it appears that bankruptcy might stop a support lien.

However, there’s an exception under that automatic stay statute for the collection of support. Section 362(b)2)(B) of the Bankruptcy Code. If you file a Chapter 7 “straight bankruptcy” case your ex-spouse can continue collecting unpaid and ongoing support against you. This includes filing a support lien on your house, and enforcing that lien as described above. So a Chapter 7 case filing will not stop the filing of a support lien against you and your house. And it won’t stop the enforcement of that lien.

But there’s an exception to this exception. Under the right conditions filing a Chapter 13 “adjustment of debts” case will stop a support lien. Unlike Chapter 7, Chapter 13 can stop a support lien from being filed and recorded. Chapter 13 can also stop a previously recorded lien from being enforced.

That’s because although Chapter 13 does not stop the collection of ongoing support, it does stop collection of past-due support. By its nature a support lien pertains to past-due support. So filing Chapter 13 can stop the filing and recording of a support lien.

The Conditions under Chapter 13

Above we said that Chapter 13 protects you and your home from a support lien under the right conditions. These conditions are arguably sensible. But you must meet them precisely or you’d very likely lose the special benefits of Chapter 13. Your ex-spouse could begin collecting for past-due support, including filing and enforcing a support lien.

The conditions you must meet include:

  • Staying current on your ongoing support payments
  • Arranging to catch up on your past-due support within your 3-to-5-year Chapter 13 payment plan
  • Staying current on your monthly Chapter 13 play payments (through which you’re catching up on your past-due support)

These conditions are arguably sensible because the idea is that you deserve a break on past-due support collection, as long as you are sticking with your legally approved commitment to pay off that past-due support debt. If you don’t keep your commitment, you lose the protection from collection.

Conclusion

If you’re behind on support payments, filing a Chapter 7 case will not stop your ex-spouse (or support enforcement agency) from recording a support lien against your house. Nor will Chapter 7 stop the enforcement of that support lien. But, if you’re not already behind, filing a Chapter 7 case may discharge (write-off) enough other debts so you can stay current on your support obligations.

Chapter 13 will stop the recording of a support lien for past-due support. It will also stop the enforcement of a previously recorded support lien against your house. But you must pay off the entire past due support obligation during your Chapter 13 payment plan. And you must do so precisely as agreed in that plan. Lastly, you must also keep current on any ongoing support obligation. If you do all these, you and your home will be protected from any support lien. Then at the end of your case you will be current on all support. Therefore your ex-spouse/support enforcement agency will no longer have any ability to impose a support lien.

 

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.

 

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