Bankruptcy Child Support & Alimony

Bankruptcy Child Support & Alimony

A Chapter 7 bankruptcy is over in about four months. A Chapter 7 does not affect a divorce property settlement, child support, or alimony collection. However, Chapter 13 does help the person who is owed child support or alimony. Chapter 13 offers a method to more quickly and fully collect child support if you ask to be paid by the Chapter 13 trustee by filing your proof of claim.

Chapter 13 Bankruptcy Child Support & Alimony
Chapter 13 Bankruptcy Child Support & Alimony

A Chapter 13 Bankruptcy lasts for three to five years. Chapter 13 helps child support and alimony enforcement if you learn how to collect both in bankruptcy court and in divorce court. Bankruptcy does not end, slow down, or modify a child support obligation. If a person’s income declines, they can modify child support payments in state court.  But bankruptcy does not modify support.  It only collects payments for creditors and pays child support before it pays other debts.

When a bankruptcy is filed, a federal court order called a stay goes into effect and stops collections from other creditors. Often having wages garnished may prevent or delay them from paying child support or alimony. But this federal court order does not slow down the state court in collecting child support or maintenance. Instead, it should speed up your child support and alimony collection.

Child Support and Alimony as a priority debt in bankruptcy

If a Debtor is behind in child support, he can include and pay child support as a priority obligation in his Chapter 13. Alimony and child support are paid as a priority debt through the Chapter 13 Bankruptcy Trustee’s office.

The custodial parent and even the attorney for the custodial parent often assume they will not get paid by the bankruptcy court. Nothing is further from the truth. The first section of 11 USC 507 (a) (1) A and B  reads child support is to be given priority status and repaid before other debts by the Trustee. Child support must also be listed in the petition so the claim can be notified and paid. The Debtor is required to be truthful and list all of their debts.

Section 11 USC 507 is at the bottom of this page if you want to read the code section. But why don’t divorce lawyers use this section to collect child support?

First, divorce attorneys and their clients assume they can’t collect support in bankruptcy.

Nothing is further from the truth. You can file a simple proof of claim form and get paid at the front of the line before the Debtor’s other creditors. Your child support or alimony claim is supposed to be paid better than his mortgage or car. And child support is always paid better than credit cards. But if you don’t file a proof of claim, you get paid zero, and unsecured debt is paid instead of the person who is owed child support.

Second, the custodial parent and many attorneys don’t understand how to enforce collection in bankruptcy.

Filing the proof of claim is the only method that allows you to get paid by the Chapter 13 trustee. Divorce attorneys are used to filing motions to enforce child support in state court.  They are often unfamiliar with collecting child support in federal court or bankruptcy. The Bankruptcy code clarifies how domestic support obligations are paid first as a priority claim. The bankruptcy code often forces unsecured debt to be paid little or nothing, so domestic support obligations (DSO claims) are paid in full.

Filing both a claim in bankruptcy court and collecting in state court means less work and that you are more likely to collect child support.

It only takes one hour or less to file the simple proof of claim form, so you are paid instead of unsecured debt in Chapter 13.

Filing this claim proof helps you collect child support or alimony in full.

Read the statute.  You will see that the Debtor must submit a Chapter 13, which catches up child support & alimony claims. If his plan does not repay domestic support in full, his Chapter 13 plan is not feasible, and it will not get confirmed. A Chapter 13 will be dismissed.  And often the Debtor goes back to losing his home, car, or being garnished.

The Debtor is required to list all of his debts. If the domestic support obligation is listed, the Trustee must send you a letter advising you that the Debtor has filed. The problem is that many debtors don’t list the debt because they often don’t want their ex to know they filed. Even if it is listed, people usually throw the letter away and never file a proof of claim.

It is best for the Debtor, child, and the custodial parent that a claim is filed. Unsecured debt is paid a higher percentage if you do not file a claim. Which is more important? Should child support be repaid, or should credit card debt and charged off medical debt be paid? The Debtor is far better off if child support is caught up during Chapter 13 than if the plan pays the unsecured debt off at 50% instead of 1%.

How bankruptcy helps enforce child support collections

If the Debtor falls behind in child support or alimony during the bankruptcy, you can go to court and file a motion to dismiss the bankruptcy case. A Debtor can stay in bankruptcy court but not if you fall further behind in support obligations.

All of this helps to pay child support, the lion’s share of money which is paid back in bankruptcy court. However, many people don’t understand this. When they find out an ex-spouse has filed for bankruptcy, they often think child support has become less collectible. It has improved your ability to collect if the person wants or needs to stay in a Chapter 13 bankruptcy.   It allows you to collect twice.

Filing your proof of claim only means you get two methods of collection, not just one.

Just because you filed a proof of claim does not mean you can’t also collect in state court. Bankruptcy does not slow down your ability to collect. Instead, it turbo charges it. Or at least it should. You have substantial control over the Debtor if this is a Chapter 13 case and the Debtor needs Chapter 13.

The request for discharge at the end of the case

At the end of the case, the Debtor must file a discharge request. The request is a certification that he has not fallen further behind in child support and lists his current employer and address. Without that certification, in Chapter 13, the Debtor will not receive the important discharge at the end of the case.

The Debtor often files this request for discharge, but a divorce attorney or the client doesn’t understand how important it is and how to act on it.

Chapter 13 requires proper planning.

When you file a Chapter 13, many attorneys fail to plan the case. The client comes in trying to stop a garnishment or foreclosure. The inexperienced bankruptcy attorney will often forget other factors like alimony and child support which need planning.   Chapter 13 cases allow you to manage foreclosure, income taxes, and student loans. Bankruptcy judges and trustees work to ensure child support and alimony are given priority status and that they are paid first.

Plans can often pay 1% or less to the credit cards and unsecured debt.  This allows child support and alimony to be paid. But divorce attorneys and their clients must understand the importance of filing this proof of claim.  They can then be paid from two methods, not just one.

The child support Bankruptcy code section 11 USC 507 (a) (1)

(a)The following expenses and claims have priority in the following order:

(1)First:

(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the Debtor, or such child’s parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.

(B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition, are assigned by a spouse, former spouse, child of the Debtor, or such child’s parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law.

 

Share This Article, Choose Your Platform!

Our Services

Contact Us with Mailing Address

Fill out the contact form stop by or Call 502 625-0903 to request your free copy of our book. We practice in Louisville, Lexington and New Albany Indiana.
  • This field is for validation purposes and should be left unchanged.

Download Our Bankruptcy Manual
Recent Posts