According to the federal Office of Child Support Enforcement, American parents have accrued over $100 billion in unpaid child support, known as child support arrearages. The reasons vary from inability to pay to deliberate non-payment, from loss of jobs to medical disabilities, and everything in between.
With up to a third of child and spousal support obligations in arrearages in some states, for whatever reason, the question quite naturally arises: if, when and for how much can unpaid child and spousal support be discharged in bankruptcy? The answer first turns on the distinction between the different kinds of bankruptcy filings.
The U.S. Bankruptcy Code offers encumbered debtors two basic options. Chapter 7 or “straight bankruptcy" discharges all but exempt debts. Chapter 13 bankruptcy reorganizes them and allows the debtor to pay them off in an approved “reorganization" plan over three to five years, administered by the bankruptcy trustee. At the end of that time, all remaining debt, including accrued interest, is wiped clean just like a straight bankruptcy.
Can You Discharge Past Due Child Support in a Chapter 7 Bankruptcy?
There’s the old saying that nothing is certain in life but death and taxes. In reality that saying might be modified to include child support, should you have a child and be separated from your other spouse.
The unequivocal answer to the question whether child support arrearages are dischargeable in Chapter 7 bankruptcy is: NO. Child support is considered a “priority debt" to which extraordinary disposition is given.
Moreover, while a bankruptcy filing typically stops all debt collection and “stays" all legal proceedings, that is not true for unpaid child support. Legal actions to establish child support, wage garnishments to collect it, levies and other collection activities for unpaid child support will generally continue unaffected by a Chapter 7 filing.
Indeed, in the vernacular of the bankruptcy courts, your child support obligation is not even part of the bankruptcy estate. Accordingly, as a priority debt, it shares special status and precedes repayment of debts from credit cards, medical treatment and the like.
Can You Manage Past Due Child Support with a Chapter 13 Bankruptcy?
Yes. Unlike a Chapter 7 filing, a Chapter 13 Petition will give you some “breathing room” and allow you to catch up. The law permits you to include past due child support payments in your reorganization plan, and thus usually pay off past due payments at a discounted rate.
For the debtor parent, the Chapter 13 also has indirect benefits. First, it allows him or her to pay past due child support as a priority item over credit card and other debt, and then, after timely payments for three to five years, discharge the balance of all other debts. Since most debtors would rather support their children first, this is a legally convenient way to favor one creditor over another.
Does a Chapter 13 Stay Actions to Determine and Collect Pay Due Child Support?
Again, the answer is: yes! Another benefit of a Chapter 13 proceeding is the power of the bankruptcy court’s stay. While a Chapter 7 does not stay any proceedings to collect past due child support debts, a Chapter 13 filing does. In the language of the bankruptcy courts, your ongoing earning are considered part of the Chapter 13 bankruptcy estate.
This means wage garnishments, bank levies and the like all come to an immediate halt the moment a Chapter 13 Petition is filed. If a creditor, even a state child support agency, seeks to commence or continue any legal action, it must first obtain the permission of the bankruptcy judge, which is usually not given as long as plan payments are current.
In fact, if you honor your payment plan with timely payments, you can achieve well-earned peace of mind. As long as those payments are current, you are even protected from the priority claims of child support creditors. Which is not to say that the process is an easy and simple one. And as long as your child support payments are current, at the end of your three to five year plan you can discharge all of your other debts.
Does the Bankruptcy Code Treat Alimony or Spousal Support Arrearages Any Differently Than Child Support Arrearages?
The general rule is that spousal support or alimony is treated just like child support. This is because the applicable federal law includes both in the broader sweep of the phrase “domestic support" obligations.
One rare but potential way to avoid this is to prove that that spousal support or alimony debt is in fact not true spousal support or alimony, such as where income is merely “treated like alimony" for reasons of the family law judge.
A second exception is where the right to spousal support or alimony has been assigned to a third party. Maybe an ex-wife assigns her alimony income to a creditor in return for a secured loan. The assigned debt is dischargeable.
The interplay between child and spousal support laws and bankruptcy is a complicated one. Rules, exceptions, practices and preference vary to state to state, juris to jurisdiction, judge to judge. Be sure to seek the wise counsel of qualified family law, debtor-creditor and/or bankruptcy counsel when navigating these treacherous waters.
The Bankruptcy Reform Act of 1978, amended, Title 11 of the United States Code.
Statutes: 11 U.S.C., sections 101(14A), 523(a)(5)
Alimony or Spousal Support: http://divorcenet.com/states/utah/ut_art20#b
Chapter 7 – Priority Debts Non-Dischargeable: http://www.nolo.com/legal-encyclopedia/child-support-debt-chapter-7-bankruptcy.html
Kinds of Bankruptcies: ms-bankruptcy.com/bankruptcy-info/differences