Many parents who fall behind in their child support obligations file bankruptcy hoping to get some relief from them. Unfortunately, child support is essentially an untouchable debt that can affect your bankruptcy in significant—and sometimes unhelpful—ways. Here's how the bankruptcy court handles child support and why you should still file.
Child Support is Paid First
Bankruptcy law categorizes child support as a priority debt because of its ties to public policy and greater societal impact. As a result, arrearages are paid in full before any of your other unsecured priority and non-priority debts.
For example, you owe money for unpaid child support and taxes. The cash and assets in your bankruptcy estate will be used to pay your back child support in full first. Anything left over will be applied to your tax obligation.
This payment order can be problematic if you are hoping bankruptcy would take care of certain debts. A sizeable child support balance can eat up all the available funds in your bankruptcy estate, leaving little for other bills. If some of the unpaid debts are non-dischargeable—such as student loans—you could potentially still owe the full amount even after receiving your discharge.
At the same time, though, filing bankruptcy offers other benefits that make it worth pursuing. For instance, the automatic stay in chapter 13 bankruptcy lasts the entire time your case is active. Creditors are prohibited from engaging in collection activities during this time unless they receive special permission. So, you'll be able to get your financial life together without worrying about harassment or wage garnishments.
It's a good idea to consult with a bankruptcy attorney about the other ways filing can benefit you.
No Discharge Until It's Paid
When you file chapter 7, you'll still get a bankruptcy discharge even if there's isn't enough money to cover the full amount you owe for past-due child support.
The same isn't true with chapter 13 bankruptcy, though. Your case won't be discharged until the arrearages are paid in full. This means your plan payments must be big enough to achieve this feat within five years maximum. If you don't make enough money to cover the required amount, you may not be approved to file this type of bankruptcy.
However, you could get around this by filing a chapter 20. This is when you file chapter 7 bankruptcy to eliminate as much debt as possible and then make payments through chapter 13 to take care of the rest. A bankruptcy attorney can let you know if this will benefit your particular situation and help you with the process.
For more information about filing bankruptcy, contact a local attorney.