Past due child support obligations can catch up with you in many awful ways….loss of a driver's license, garnishment and unhappy ex-spouses to name a few. Is the stress from continuing pressure to catch up keeping you up at night? Let's discuss how a Chapter 13 can be used to provide you with an affordable option to catch up those obligations and provide some relief.
Can't I use Chapter 7 to obtain the same relief?
No. Under 11 U.S.C. §§523(a)(5) and 101(14A) of the bankruptcy code, child support is a non-dischargeable debt in both Chapter 7 and Chapter 13. That means it will never go away by filing a bankruptcy. Chapter 7 is a 90 day process where you are not proposing to pay your creditors. In Chapter 13, you propose a plan to restructure your debt and pay some of your creditors over time. Although a Chapter 7 may eliminate some debt such as credit cards and medical bills, it will not stop a garnishment from the child support collection division for past due support (or your ex-spouse for that matter!). After a discharge in Chapter 7, you are left with the unpaid support obligation to address from your earnings.
Why is Chapter 13 different?
Chapter 13 is a payment plan approved by the federal bankruptcy court allowing you restructure all of your debt over a three to five year period of time. Chapter 13 plans are set up based on what you can afford to pay. These plans are also structured in a certain order of payment – secured debt (mortgage, cars) get paid first, priority tax and child support obligations next, and unsecured debt (credit cards, medical bills) last. Chapter 13 lets you focus your income on those debts that you must pay. It also allows a three to five year period to pay them, making it affordable to do so.
This order of payment is a very useful tool to make sure your past due support obligations get paid timely without the pressure from other creditors. Even better, Chapter 13 mandates that the State or your ex-spouse, whomever is collecting the past due support obligation, participate through the Chapter 13 process to collect past due amounts through the bankruptcy case.
Monthly budget – Your monthly budget is the key to your success in Chapter 13. At Kuni Donaldson, LLP, we work with our clients to develop an affordable monthly budget. This budget allows you to propose one payment to address ALL of your creditors over time. It is based on your actual monthly income and reasonable expenses. We try to estimate how much you'll earn each month, and what your expenses are including those that happen only a few times per year (oil changes, tire replacement, un-reimbursed medical expense, etc. ). Your budget should be one that you can live within and not feel strapped every month. The final budget should be one that you feel you can easily maintain so that you can achieve success in your Chapter 13.
Important Considerations
- You must receive regular income to participate in Chapter 13. This income can be from unemployment, draw from a business, a paycheck from a hourly or salary job to name a few.
- You must complete your Chapter 13 payments within a three to five year period of time.
- If you have an ongoing support obligation, that must continue until paid or the obligation discontinues. The Chapter 13 plan is useful to catch up on past due amounts but you must stay current on the ongoing obligations.
- You cannot fall behind after filing Chapter 13 on debt that must be paid (like ongoing support or tax obligations). If you fall behind, the creditor can request that your Chapter 13 case be dismissed.
The goal is that by the end of your Chapter 13 plan, your debts that must be paid are paid and you are current on your ongoing obligations. If Chapter 13 is something you might be interested in, please call the experienced attorneys at Kuni Donaldson, LLP. We have been practicing bankruptcy law for over 18 years and are very knowledgeable in the Chapter 13 process.
