The annual child support payments in the United States amount to $33.7 billion, but less than half of custodial parents receive the full amount of support as required by court order or informal agreement.
What happens to unpaid child support?
Debts grow just like any unpaid debt. These debts can accumulate quickly and have serious consequences. Depending on where you live, authorities can impose interest, garnish wages, suspend your driver’s license, or even jail you.
Types of Domestic Support Obligations in Bankruptcy
Bankruptcy law defines a “Domestic Support Obligation” (DSO) as a debt “in the nature of alimony, maintenance, or support” owed under a separation agreement, divorce decree, property settlement agreement, or other court order issued under non-bankruptcy law (typically state law).
Alimony and Spousal Support
For money owed to a spouse to be exempt from liquidation, the debts must meet three requirements: the debt must be in the nature of alimony, maintenance, or support; the debtor must owe the former spouse; and the debt must arise from a separation agreement, divorce, or property settlement agreement (or another order from a registered court).
Property Settlement
These agreements are most often used in divorce cases to divide assets that were owned by the spouse during the marriage. They are frequently used to determine the parties’ agreement on who will pay the debts.
Maintaining Security
Although support and some other divorce-related debts cannot be discharged in Chapter 7 bankruptcy, they can usually be managed in Chapter 13 bankruptcy. Chapter 13 is a repayment plan under the protection of the bankruptcy court. It is a comprehensive management plan where all of the debtor’s debts are handled in some manner.
Priority Debts in Chapter 13
Bankruptcy law gives priority to debts to ensure that certain debts are paid before others when there are not enough resources to repay 100% of creditors’ claims. For example, domestic support obligations are given high priority, but most other unsecured debts, like credit cards and healthcare bills, are given lower priority. This becomes significant in Chapter 13 cases when the debtor does not have enough money and cannot pay all of their obligations.
Non-Priority Debts in Chapter 13
When the debtor does not have sufficient disposable income to pay all of their obligations, they may still propose a repayment plan that pays at least those priority obligations. Regarding priority obligations, priority creditors share the remaining amount based on what they are owed.
Using Bankruptcy to Manage Domestic Support Obligations and Other Divorce-Related Debts
Although support and some other divorce-related debts cannot be discharged in Chapter 7 bankruptcy, they can usually be managed in Chapter 13 bankruptcy. Chapter 13 is a repayment plan under the protection of the bankruptcy court. It is a comprehensive management plan where all of the debtor’s debts are handled in some manner.
To receive court approval for a Chapter 13 plan, certain priority debts must be paid over three to five years. The exact length of the plan depends on the debtor’s household income. These priority debts include non-dischargeable domestic support obligations and obligations related to property division. Priority obligations do not include obligations arising from secured agreements or any cash payments in lieu of assets. These last two are treated like credit cards and healthcare bills.
Although a child support claim cannot be discharged, you can take up to five years to pay it in Chapter 13 under the protection of the bankruptcy court. Child support creditors cannot take any action regarding these debts as long as you make the payments and comply with current domestic support obligations according to your plan.
Debts
Non-priority debts in Chapter 13
When a debtor does not have sufficient disposable income to pay all of their obligations, they can still propose a repayment plan that pays at least those priority obligations. With regard to priority obligations, priority creditors share the remaining amount in proportion to what they are owed.
Let’s return to the example of Mila and Roger. Mila pays child support to Roger, but after losing her job, she was unable to pay, and her child support debt has now reached $15,000. When she gets a new job, she decides to file for Chapter 13. She will repay that $15,000 over a plan that lasts five years. She also has $20,000 in credit card debt and $50,000 owed to Roger for his share of the home equity. After paying all of her reasonable and necessary monthly expenses, she only has $400 left to allocate to her Chapter 13 plan. About $250 of the $400 payment will go to Roger to repay the $15,000 by the end of the five-year plan. Will
Source: https://www.thebalancemoney.com/child-support-and-alimony-in-bankruptcy-4154002
Leave a Reply