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Archive for the ‘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.

 

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.

 

Giving More Thanks for Chapter 13 “Adjustment of Debts”

December 2nd, 2015 at 8:00 am

We’re lingering in the Thanksgiving spirit by appreciating what Chapter 13 has to offer.

 

Beyond the first 3 we covered a couple days ago, here are 3 more impressive features of Chapter 13 which are completely unavailable under Chapter 7 “straight bankruptcy”:

4) The “Co-Debtor” Stay

The “co-debtor stay” enables a person filing a Chapter 13 case to immediately prevent a creditor from requiring a co-signer to pay a co-signed consumer debt. Depending on what you want, that protection can be either temporary or permanent.

The protection is temporary if the creditor asks the court for permission to pursue your co-signer and you don’t do anything to prevent that from happening.

The protection of your co-signer is permanent if you arrange in your 3-to-5-year Chapter 13 payment plan to pay the co-signed debt in full. Most of the time you are allowed to pay a co-signed debt in full through your Chapter 13 payment plan while paying less, or sometimes even nothing, to most of your other debts. That is, in most parts of the country you can completely favor your co-signed creditor to the detriment of your other creditors.

As a result, your co-signer is immediately protected upon the filing of the Chapter 13 case, he or she is protected throughout the life of the Chapter 13 case, and when the case is over you’ve paid the debt in full so that the creditor has no further recourse against your co-signer.

5) Protection beyond Property “Exemptions”

If you have an asset which you really need (or simply want to keep) but is not covered by a property exemption, under Chapter 7 the bankruptcy trustee could take and sell it, giving the proceeds to your creditors. But instead under Chapter 13 you can keep that asset by paying for the privilege during the course of your payment plan.  

You do that by paying to your creditors as much as they would have received if you would have surrendered that asset to a Chapter 7 trustee. But you have 3 to 5 years to do that, throughout which time you are under the protection of the bankruptcy court. Your Chapter 13 payment plan is structured so that your obligation is spread out over this length of time, making it relatively easy and predictable to pay (in contrast to, for example, negotiating with a Chapter 7 trustee to pay to keep an asset).

You may even be able to keep your non-exempt asset(s) in a Chapter 13 case without paying anything more to your creditors. This tends to be more likely if are also in the Chapter 13 case because you owe taxes or back support payments. One of the biggest advantages of Chapter 13 is that it can play your financial problems—like having too much assets and owing back taxes—against each other. You may be able to pay money into your plan that both protects your assets and pays the taxes and/or support that you can’t discharge anyway. So you can get your assets protected and taxes/support paid, and finish the case free and clear of your debts.

6) Catching up on Child and Spousal Support Arrearage   

If you’re behind on support payments, only Chapter 13 can stop your ex-spouse or support enforcement agency from very aggressively pursuing you, and give you a reasonable time to cure your support arrearage, if you follow the rules.

Bankruptcy is limited in its ability to help deal with child and spousal support debts, with Chapter 7 not able to directly help at all other than to free up money so that you can pay ongoing and back support. However, Chapter 13 CAN stop the collection of any support that you are behind on as of the date the case is filed, giving you a very flexible way to catch up on what you owe without the huge pressure that your ex-spouse or the support enforcement agency usually puts on you. But this huge benefit comes with conditions and responsibilities, so be sure to fully understand and follow the rules.

Besides earmarking enough money within your plan to pay off the unpaid support payments owed, you must also:

  • Keep strictly 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 making sure it is paid on time. Otherwise your ex-spouse/support enforcement can immediately inform the bankruptcy court that you’ve not made the payment and get permission to start/resume collection of the back support.
  • Keep current on your monthly Chapter 13 plan payments. Those plan payments are what is paying the support arrearage (along with whatever other debts you are paying through the plan). So if you fail to make a single payment on time—at any time in your case—your ex-spouse/support enforcement can ask the court for permission to resume collection of the back support amount.

Chapter 13 gives you extraordinary power to stop collection of whatever support you owe at the time that your case is filed, as long as you are very vigilant and not squander that power. If you do it right, you’ll come out of your Chapter 13 case current on your support obligation, and, other than a home mortgage, likely completely debt-free.

 

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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210-342-3400

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