What do the laws of bankruptcy and child support entail? Check out our guide for everything you need to know.
What do the laws of bankruptcy and child support entail? Check out our guide for everything you need to know.On average, non-custodial parents required to pay child support are ordered to pay just over $5,500 per year. That works out to almost $500 per month. For parents already struggling with debt and high expenses, it can be easy to fall behind.
In fact, only about 60 percent of the child support owed on an annual basis actually gets paid. This can lead to huge arrears, wage garnishment, and further financial strain. Unsurprisingly, many parents then turn to bankruptcy in hopes of finding relief.
The rules surrounding bankruptcy and child support however, may offer less respite than parents expect. Here’s what everyone struggling with child support and considering bankruptcy needs to know before they file.
Child Support Is Non-Dischargeable
The number one thing potential bankruptcy filers need to be aware of is that child support is classified as a priority debt. This means that it cannot be discharged through bankruptcy. Moreover, the court will pay child support arrears before it pays off any other debts.
Unlike other priority debts such as student loans and back taxes, child support continues to be collected even during the bankruptcy process when all other collections efforts are frozen. Furthermore, all income that a filer earns after the date of filing remains fair game for collections agencies trying to recoup on late child support payments.
The bankruptcy alimony situation is the same. Bankruptcy does not discharge, eliminate, or halt court-ordered alimony payments. Alimony debts, like child support, will be paid by the bankruptcy court trustee before other debts are addressed.
This doesn’t mean that bankruptcy cannot help at all. Both Chapter 7 and Chapter 13 bankruptcies can assist parents in gaining control over their finances and child support situations in the right circumstances.
Chapter 7 Bankruptcy
Chapter 7 and divorce are a common pairing as liquidating assets and debt can streamline a divorce and give both spouses a fresh financial start. Filing for Chapter 7 bankruptcy can help with child support as well.
When a non-custodial parent files under Chapter 7, their child support payments do not go away. That said, liquidating their assets can help pay off a large portion of their child support in arrears, bringing them current or close to it. This can be enough to avoid wage garnishment and prevent other negative legal action resulting from missed payments.
Additionally, Chapter 7 proceedings can discharge most other forms of debt hanging over a filer’s head. This can free up income on a monthly basis. Since the filer no longer has to put funds toward paying off the debts discharged by bankruptcy, they can dedicate that money to catching up with and keeping current on their child support.
Chapter 13 Bankruptcy
Chapter 13 and divorce are a less common pairing than divorce and Chapter 7 bankruptcy. This is partly due to the fact that Chapter 13 repayment plans complicate divorce rather than simplify it. This can delay a couple’s bankruptcy plans until the divorce is final.
Incompatible as it is with divorce, Chapter 13 can be extremely empowering for parents struggling with child support debt.
Protecting Future Funds
Unlike Chapter 7, Chapter 13 proceedings do not encompass only filers’ pre-filing assets. Under Chapter 13, any new income or assets earned or acquired after filing are also covered.
That rule can prevent collection agencies from pursuing child support debt outside of the repayment plan. The three biggest benefits are that it:
- Protects filers from the stress and hassle of collections
- Creates more financial certainty
- Gives filers more control over their finances
Addressing Arrears
Chapter 13 repayment plans also fully account for all of a filer’s child support debts. This includes their ongoing commitment and any money they owe in arrears. As a result, the plans often discharge more non-priority debt to enable filers to meet their child support obligations.
They bring filers up to date on their commitments over the course of five years. This can improve filers’ credit scores, free them from wage garnishment and other penalties, and even eliminate property division debt.
Thus, while it does not get rid of the child support debt, it can enable parents to access the money they need to get current and reverse the negative impacts of being in arrears in their lives and finances.
Bankruptcy and Child Support: Timing Matters
If you filed for bankruptcy when you divorced, you may not yet be eligible to file again. On average, filers must wait between four and eight years between filings. The exact minimum depends on what chapter you filed under before and what chapter you want to file under now.
For example, if you filed under Chapter 7 before and want to do so again, the time limit between filings is eight years. If you filed under Chapter 13 before and wish to file Chapter 7 this time, you need to wait six years between filings. If you filed under Chapter 7 and intend to file under Chapter 13 this time, the minimum time limit between filings is only four years.
Transfer of Assets
It is also essential to consider your recent financial choices and activity before filing.
Bankruptcy courts are keen to prevent fraud. As such, they examine filers’ financial activity and records in detail for more than a year prior to filing. They enforce strict rules about the transfer or sale of assets that might otherwise have been used to pay off debts.
As a result, the specific timing of a bankruptcy filing can make an enormous difference in the outcome of a case. Waiting a few days, weeks, or months to file can change the period of time courts examine. This can be beneficial to applicants who may not have the right records to demonstrate the validity of a given transfer or sale just before the qualifying period of time begins.
Understanding these kinds of intricacies can be a challenge. As a result, any parent considering filing for bankruptcy to address child support issues should speak to an attorney first.
Get Expert Advice
Bankruptcy will never make child support debt disappear. There is a chance though that it can help you get that debt under control.
If you think this solution might be right for you, don’t wait. Call (402) 415-2525 to schedule an appointment today to speak to an attorney in Omaha who specializes in bankruptcy and child support. We will help you take the first steps in the right direction.
