Bankruptcies are legal actions involving a person or a company that cannot pay their debts when they become due. Bankruptcy puts into place what is known as an “automatic stay.” The automatic stay prevents creditors from contacting the debtor trying to collect their money. All forms of contact are included.
Bankruptcy proceedings are conducted by a bankruptcy judge who assesses a debtor’s assets that might be used to pay off obligations. There are various types of bankruptcy, some for individuals and some for companies. Chapter 7 bankruptcy allows an individual to erase certain permitted debts personally.
To qualify to file for Chapter 7 bankruptcy, the debtor’s income must be equal to or below the median income in the debtor’s state, or the debtor must otherwise pass a “means test.” One reason the court denies a bankruptcy petition is that the debtor’s income-to-debt ratio does not meet the statutory requirements. In other words, the court believes that the individual makes enough money to pay off the debts, which is what they will be required to do.
While bankruptcy can be tremendously helpful to the filer, it can mean some creditors are left without recourse for collecting on their debts. Many types of debt can be discharged, but some kinds cannot. If a debt is Nondischargeable, the debtor will still have to pay it even though they qualify for bankruptcy. Among others, the following categories of debts cannot be discharged:
- Support payments ordered by a court, such as child support and alimony
- Student loans
- Federal, state, and local taxes
- Any money borrowed on a credit card to pay taxes
- Any fines or other fees associated with breaching the law
If the debtor does not want to pay nondischargeable debts, they must file for a court order seeking to modify the underlying orders, creating those legal obligations.
What Qualifies as Child Support?
Child support is the amount of money a non-custodial parent is legally required by court order to pay the custodial parent. Intended to benefit the child, child support can be used to cover the child’s food, shelter, clothing, health and well-being, and educational costs.
Child support is usually determined based on both parents’ financial information and the amount of time the non-custodial parent spends with the child.
How Does Chapter 7 Bankruptcy Affect Your Ability to Pay Child Support?
While there are some negative consequences for filing for bankruptcy (e.g., a decrease in credit score and difficulty obtaining a subsequent mortgage), permanently discharging several debts concurrently might outweigh the negatives for the filer and allow them to start fresh by getting out from under overwhelming debt. This may be the thought process for a parent seeking to discharge a child support obligation by filing for bankruptcy.
When one parent decides to file for bankruptcy and is obligated to pay child support, the custodial parent will be interested in how doing so will affect their ability to collect child support. As mentioned, chapter 7 bankruptcy does not automatically stay or erase the filer’s obligation to pay child support. Depending on the parent’s specific circumstances, the bankruptcy filing also may not be sufficient to warrant a child support modification.
Bankruptcy laws prioritize certain debts, which means even when the debtor successfully files for bankruptcy, certain creditors are still allowed to recover against the debtor. Whether a creditor can collect on these debts even when a bankruptcy is filed depends on whether the debts are classified as priority. The highest priority debts include support debts such as student loans and child support.
What Should I Do If I Want to Modify My Child Support Payments During a Bankruptcy?
During your bankruptcy, the state family court with jurisdiction over your case can still order hearings and punishments for your failure to pay child support. If you retain property exempt from creditors, it can be sold to pay back child support. Efforts by the state and the court to enforce a child support order will proceed as if there is no bankruptcy.
The bankrupt parent’s option is to file for a child support order modification. The evidence of a bankruptcy filing or proceeding does not automatically establish a need to modify a child support order. The bankrupt parent must establish there is a changed financial circumstance to justify a modification of the child support order based on their inability to pay.
The inability to pay child support may occur if the parent has decreased income or assets since the child support order was created. The court will consider several factors in determining whether to modify the court order, including whether the changes in circumstances are material, voluntary, and temporary.
To obtain a modification of child support, you must demonstrate that the facts, as they existed at the time of the last child support order, have altered. During the many years while a child support order is in place, the parents’ circumstances may change many times. Support can be reduced if you convince the court that this would be fair.
For example, support payments may be reduced if the parent who has custody over the child inherits money, gets a large raise, or has an increased ability to support the child. Or, if the paying parent loses employment, this can persuade the court to reduce child support. Other examples of changed scenarios include becoming disabled or being sentenced to jail or prison.
Bankruptcy itself is not a valid reason for modification of child support, but the underlying facts that caused the bankruptcy might be.
Can Other Potential Income Be Used to Satisfy Child Support?
Remember that property not available to creditors can be seized and sold to satisfy the child support obligations of a bankrupt parent. Additionally, income or property obtained after bankruptcy filing generally is not shielded and may be ordered used to pay child support.
What Should You Do About Child Support During a Bankruptcy Proceeding?
Even as the Chapter 7 bankruptcy proceeding is ongoing, you must make your best efforts to continue to pay your monthly child support payments. Even with the bankruptcy, the custodial parent still can file a lawsuit to collect your overdue child support and any currently due child support.
The bankruptcy court will consider your child support order when it reviews your list of outstanding debts to determine the amount available to be erased.
Should I Consult an Attorney If I am Filing for Bankruptcy and Worried About Child Support?
Bankruptcy typically will not discharge or modify your obligation to pay child support, and the state may pursue enforcement efforts against you to collect the child support. Bankruptcy may or may not be the best solution for your financial problems, depending on your situation, your debts, and how much property you need to protect. An experienced child support lawyer should be consulted if you are considering bankruptcy.
The majority of people who file for bankruptcy in the United States do so with the assistance of an attorney, just as with other court cases. Bankruptcies come in many forms, and some rules accompany each. An experienced bankruptcy lawyer can be very helpful.
Finding the right bankruptcy attorney is crucial since bankruptcy is a complex legal claim. If you decide to file, an attorney can ensure that your property is protected, that all of your dischargeable debts are discharged, that the court modifies your child support obligations, and that your creditors do not violate your rights. By doing so, you will be on the right path to financial recovery.
