When you are struggling with debt, it can be difficult to make monthly payments. Whether these payments are for your everyday expenses and bills or to pay down those debts, just managing your finances from month to month can seem like an uphill battle.
This is especially true when it comes to expenses like child support. Fitting this into your budget every month while debt mounts can create real problems – and often leads to people falling behind on these payments.
Is bankruptcy an option? Can you wipe out child support debt in Chapter 13 bankruptcy? The answers to these questions can be complicated and could leave you questioning whether bankruptcy would be worth your time. However, choosing to forego bankruptcy when you are struggling with debt could mean leaving a workable solution to your problems on the table!
To learn more about what happens to child support debt in Chapter 13 bankruptcy, let’s break down exactly what this bankruptcy chapter means for consumers – and how child support payments fit into that equation.
Can you wipe out child support debt in Chapter 13 bankruptcy? Unfortunately, you cannot.
This is because Congress has determined that child support payments are a “priority debt”. This is because these payments are in the public interest, and failing to pay them becomes an issue of public policy. Parents in the United States are legally obligated to support their children, and regardless of your financial situation, failing to do so can be heavily penalized.
If you cannot wipe out your child support debt through bankruptcy, why even consider filing? While you cannot wipe out child support debt in Chapter 13 bankruptcy, the process can still be incredibly beneficial.
The idea of Chapter 13 bankruptcy is to reorganize debt and make repayment more possible. That can be incredibly helpful for those struggling with debt, but who have debts that are not eligible for discharge through avenues like Chapter 7 bankruptcy. It is also the top choice of those who wish to hedge their bets against losing property and assets, which is much more likely if you receive a discharge through Chapter 7 bankruptcy.
Chapter 13 bankruptcy can also help you sort out your financial priorities. When you are staring down a mountain of debt from multiple sources, it is easy to feel overwhelmed. When this happens, it is hard to make sense of what your top repayment priorities are.
Since child support debt is a priority debt, it jumps straight to the top of your list when determining which debts should be repaid. Other debts may be eligible for discharge or reduction during the Chapter 13 process, so your focus should stay on your child support payments throughout the bankruptcy.
Your bankruptcy attorney undoubtedly also understands your desire to prioritize your children’s needs over those of your creditors. Those who are paying child support are looking to ensure that their children have what they need, and during the bankruptcy process, you can continue doing that while working to pay down other debts.
You may already know that an automatic stay in bankruptcy can prevent the pursuit of outstanding debt by your creditors while you are in the bankruptcy process. While this does not actually prevent creditors from pursuing the repayment of priority debts like child support, it does help protect your earnings in other ways.
During a Chapter 13 bankruptcy, your earnings are considered part of the bankruptcy estate. What does this mean for you? It means that to pursue the amount you owe to the agency collecting child support payments from you, that agency must petition the court in the form of a relief of stay motion.
Can this still happen? Absolutely. However, it is far less likely than it would be if your earnings were not tied up in the bankruptcy estate.
Typically, as long as you can demonstrate that you are making an effort to repay your debts – and are still making your regular payments as they come due – it is unlikely that they will bother with this motion. Remember, their priority is getting paid. If you can demonstrate that you are making an effort to do that, that is usually good enough.
While working through a Chapter 13 bankruptcy does allow you to settle current debts, it does not allow you to create new ones. This means that, when it comes to ongoing payments like child support, you are only able to work on paying down arrears that you have already accrued.
You must also continue making current payments as they come due, as these are still your legal responsibility. If you are not able to do this, you will violate the terms of your bankruptcy agreement and can no longer benefit from its protection. If this protection is lifted, your creditors – including the agency to whom you owe child support – will be able to come after your earnings through wage garnishment and more.
It is critically important to remember that a Chapter 13 bankruptcy discharge is only possible if you are current on your child support payments. This means if you still have any outstanding child support debt, you will need to pay that down before you can receive your discharge. Be sure to prioritize these payments as part of your overall plan.
Dealing with debt while trying to maintain required payments like child support can be difficult. We understand – and we’re here to help!
At the Van Horn Law Group, we offer experienced, compassionate guidance through every part of the bankruptcy process. From choosing the right chapter and showing you how to file to setting you up for success after your discharge, we will be with you at every step of the journey.
Ready to start creating a brighter financial future? Give us a call today to learn how we can help!
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