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Archive for the ‘child and spousal support arrearage’ tag

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.

 

Chapter 13 Buys Time

July 21st, 2017 at 7:00 am

Chapter 13 is very different from Chapter 7 “straight bankruptcy.” It buys you time to deal effectively with your special debts. 


The Main Overall Benefit of Chapter 13

The main benefit of Chapter 7 “straight bankruptcy” is the discharge—legal write off—of your debts.

You also get a discharge in Chapter 13 “adjustment of debts.” But a more immediate and often more important benefit is that you’re protected from collection action by creditors while you pay all or a portion of certain special debts. Those special debts are usually ones that Chapter 7 does not discharge, or does not help in a meaningful way.

Buying Time

Here are some examples of the kinds of debts that buying time under Chapter 13 helps you with.

  • Home Mortgage: If you’re behind on your first mortgage Chapter 13, can give you as much as 5 years to catch up. An ongoing foreclosure is stopped. Future ones can be prevented. This buying of time gives you a much more practical way to save your home. And a much more peaceful one.
  • Recent Income Tax Debts: Taxes that don’t qualify for discharge (usually because they are too recent) are subject to immediate collection as soon as a Chapter 7 is completed. Interest and penalties continue to accrue. In contrast, under Chapter 13 the tax creditors must stop collections throughout the 3 to 5-year payment plan. And generally interest and penalties both stop accruing.
  • Child or Spousal Support: Chapter 7 does not buy you ANY time if you’re behind on support. Chapter 13 stops collection on the arrearage (although ongoing monthly support can continue being collected). You then have time to catch on the support over time, based on what you can afford.
  • Vehicle Loans: If you’re behind on your car or truck, in Chapter 7 you have to catch up in a matter of weeks. Chapter 13 gives you years. And if the debt is more than the value of the vehicle, through “cramdown” you would probably not need to catch up at all. Plus the monthly payment can often be reduced. The term of payments may be stretch out over a longer period of time. These all buy you time. The end result is that you can keep the vehicle less expensively and with less worry.
  • Unpaid Property Taxes: If you’ve fallen behind, just like a mortgage you get years to catch up. And you don’t have to worry about a property tax foreclosure in the meantime. Also, your mortgage lender can’t use your being behind on property taxes as a reason to foreclose on the mortgage.
  • Student Loans: Generally you can stop paying on your student loan during your Chapter 13 case. This is especially beneficial if you do not currently qualify for an “undue hardship” discharge but expect to more likely do so later in your case. Ask your bankruptcy lawyer about how the law is enforced because it varies by region.

 

Power over Your Secured Debts through Chapter 13

June 27th, 2016 at 7:00 am

Chapter 7 strengthens your hand with your secured debts. But Chapter 13 can be much stronger.  Starting with a more potent “automatic stay.”

 

The last blog post explained how filing a Chapter 7 “straight bankruptcy” can:

1) temporarily or permanently stop your secured creditors from taking your property in which they have a lien;

2) prevent a creditor with an unsecured debt from turning it into a secured one;

3) help you keep the property which has a creditor’s lien; and

4) if you want, enable you to surrender the collateral to the creditor without owing anything more on the debt thereafter. 

However, another legal option, the Chapter 13 “adjustment of debts,” can often give you a whole lot stronger version of these four benefits than does a Chapter 7 case. You may not always need more help. But in many situations when you do, Chapter 13 can work wonders.

Because there are so many ways that Chapter 13 helps, we’ll cover these four benefits in four blog posts, starting with the first one today.

Benefit # 1: Stopping Secured Creditors from Taking Your Property

In a Chapter 7 case the “automatic stay” stops your secured creditors from taking any action against your property in which they have a lien. This “stay” is imposed immediately as of the moment that your case is filed. This happens just as quickly under Chapter 13. (See Section 362 of the Bankruptcy Code.)

But the “automatic stay” can be tremendously stronger under Chapter 13 for three reasons. It:

1.  lasts much, much longer,

2. can apply also to protect co-signer on consumer debts, and

3. provides a protected environment to allow the other Chapter 13 benefits to work.

Lasts Much, Much Longer

Chapter 7’s “automatic stay” generally lasts only about 3 or 4 months as it protects you and your property from the secured (and other) creditors. Sometimes the period of protection is even shorter. If a secured creditor is aggressive about trying to get back its collateral, that creditor may ask the bankruptcy court for “relief from stay” to start or resume chasing the collateral. Either way, Chapter 7’s “automatic stay” only pauses the action against you and the property.

In contrast, a Chapter 13 case usually lasts 3 to 5 years. The protection of the “automatic stay” over your property can last that entire time.

Just as in Chapter 7, during a Chapter 13 case a creditor can ask for “relief from stay”—permission to pursue your property. But practically speaking, whether or not a creditor asks for “relief from stay” in the first place largely depends on how you and your bankruptcy lawyer treat that creditor in your Chapter 13 payment plan. There are some relatively complicated laws about how secured debts can be treated. You can avoid problems by not giving your secured creditors legal grounds to complain.

Then once the Chapter 13 plan is approved by the court, whether a creditor complains and asks for “relief from stay” after that depends on how well you fulfill the terms of that plan as it affects that creditor.

Even if the plan is reasonable and even if you are making payments on it as approved, the creditor may still ask for “relief from stay” just to force some concessions from you. The creditor may want larger monthly payments to pay off a debt faster, or conditions to induce you to make the payments on time.

This kind of legal maneuvering can complicate the “automatic stay”protection. But it does not change the reality that under Chapter 13 your secured property is usually protected for much longer, giving you a lot more flexibility in how you handle your secured debts.

The “Co-Debtor Stay”

A Chapter 7 case does nothing to stop a creditor from pursuing a co-signer or the co-signer’s collateral. But Chapter 13 does provide this benefit. (See Section 1301.)

There are conditions and limitations to this special “stay.” But from the start the co-debtor stay immediately protects the co-signer and his or her property. That gives you a chance to get your Chapter 13 plan started and see whether and how the creditor responds.

Similar to the usual “automatic stay,” a creditor can ask for “relief from the co-debtor stay” to get court permission to go after the co-signer or his or her collateral. If the creditor does not make this request, your co-signer is protected. Indeed, only if the bankruptcy court says otherwise, your co-signer is protected.

If and when the co-signed creditor makes this request of the court, you may need to pay this creditor more to prevent it from being allowed to go after your co-signer.  Under some circumstances you may be able to pay more to this creditor simply by paying less to your other creditors, while paying no more in total.

Again, it depends on the facts of your case. But the reality is that the “co-debtor stay” gives you the power to protect your co-signers immediately and potentially for the long run, where Chapter 7 would provide no help at all.

Enables the Other Chapter 13 Benefits to Work

Chapter 13 gives you many strong powers for dealing with secured creditors. Many of those only work because of the long and continuous protection provided by the “automatic stay.”

For example, unlike Chapter 7 which provides no legal mechanism for catching up on unpaid mortgage payments, Chapter 13 effectively gives you the entire length of the 3-to-5-year case to catch up. But this only works because throughout this time the mortgage holder is stopped from foreclosing by the ongoing “automatic stay.”

There are many other Chapter 13 benefits that can only be implemented with an ongoing “automatic stay” giving you the necessary protected time.  Just a few examples of these other benefits are:

  • the “stripping” of a second mortgage to stop the monthly payments on that mortgage and reduce the amount of debt against the home
  • “cramdown” of a vehicle loan to reduce payment amounts and the total to be paid
  • catching up on child or spousal support payments while collection efforts are on hold
  • paying off recent unpaid income taxes without the IRS/state being able to pursue you in the meantime
  • catching up on unpaid real property taxes on a home, without your mortgage holder being able to foreclose on that basis in the meantime

 

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