Whether you lost your job and couldn't find another position at the same pay level or incurred hefty medical bills that kept you from paying other debts until you'd recovered, you may have fallen behind on your child support obligations over the years. Owing back child support can affect you in a number of ways, from garnishments to tax intercepts, and may even prevent you from being offered certain types of jobs.
If you feel you're in a hole from which you simply can't climb out on your own, you may be considering bankruptcy as an option. Will this be enough to get you out of the debt hole for good? Read on to learn more about how delinquent child support payments are treated in bankruptcy proceedings, as well as the best options to help you restructure your finances and begin catching up on these missed payments.
Can child support be discharged in bankruptcy?
Although Chapter 7 bankruptcies can essentially wipe your financial slate clean by releasing unsecured debts like credit cards and medical bills (and allowing you to reaffirm or relinquish secured debts like mortgages and auto loans), there are certain types of debts that are exempt from a Chapter 7 discharge. These include most student loans, alimony, and child support.
As a practical matter, this means that if the majority of your debt load includes student loans or past-due child support, a Chapter 7 discharge may be of only limited use. This bankruptcy discharge will impact your credit score, spurring lenders to reduce the limits on your current credit cards and preventing you from taking out new debt (except at ultra-high interest rates).
Because it can take years for your credit to recover from the impact of a Chapter 7 bankruptcy, this may not be a good option unless the amount of debt you're able to discharge is more than you'd ever be able to pay off on your own. However, there are other bankruptcy options that may provide a greater level of assistance.
When may bankruptcy help you catch up on your past-due child support?
A Chapter 13 bankruptcy, unlike a Chapter 7 discharge, involves restructuring your debts in a way that allows you to make more manageable payments over a period of time—generally three to five years. If your household income over the six-month period preceding your bankruptcy filing is higher than the median income in your state, you'll be required to enter a five-year repayment plan, while those whose income is lower than the state median may choose between a three-year plan and five-year plan.
After you've decided that a Chapter 13 repayment plan is right for you, the bankruptcy trustee will gather information about all your assets and debts, as well as information on your monthly income and necessary expenses like utilities and food. The trustee will rank these debts in priority order and then set a contribution amount (based on your total debt load and the amount of disposable income you need to fulfill your non-debt obligations) that you're required to turn over to the trustee on a regular basis.
When you pay this money to the bankruptcy trustee each month, he or she will turn around and distribute it to the creditors based on priority. Because child support is a court-ordered obligation intended to provide necessary support for minor children, it generally rises to the top of the priority list. Over the course of your repayment period, your past-due balances should dwindle; you may even be able to pay off some of your debts entirely by the end of your three- or five-year repayment plan.
If you find yourself overwhelmed by the number of bills you're juggling or the constantly-approaching due dates, it may be worthwhile to investigate the restructuring of your debts under a Chapter 13 repayment plan. Doing this could eliminate any existing garnishments and help you gain a fresh start even without wiping out your debt through a Chapter 7. For more information or assistance, contact firms such as Morrison & Murff.