The Strongest Tool in Bankruptcy against your Divorce: Paying Support Arrearage Through Chapter 13

December 28, 2009 by Oliveros & O'Brien, P.C.

In the last two months we’ve written blogs called "I Need a Divorce and a Bankruptcy: Which Comes First?" and “How to Protect the Rights in My Divorce Decree from My Ex-Spouse’s Bankruptcy?” Now in this blog we clear up some major misconceptions about what you can and can’t do with spousal and child support obligations in your bankruptcy case.

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Although the treatment of divorce debts in bankruptcy can be confusing, in the case of support obligations it’s straightforward: for just about all purposes, support payments are not affected by a bankruptcy filing. The crucial exception is support “arrearage,” the accrued support payments that you are behind on.  You can gain some major advantages over your support arrearage through filing Chapter 13.

 

What Happens in Chapter 7

Chapter 7 is what is sometimes called “straight bankruptcy.” It usually (but not always) takes about 3-4 months to complete, and debts are either “discharged” (legally written off) or they are not. You either keep all your assets or you don’t. Then the procedure is done.

All child and spousal support debts and payments are not affected. After the case is over you will still owe any support that you were behind on when you filed the case, and your obligation to pay whatever your divorce decree says will not change. Your ex-spouse or the state support enforcement agency will be able to continue collecting on both any ongoing support and arrearage throughout a Chapter 7 bankruptcy case, without being stopped from doing so by the “automatic stay” which stops most other kinds of creditors from continuing their collections against you the minute your case is filed.

 

What’s Different and What’s Not in a Chapter 13

In contrast to Chapter 7, Chapter 13 is a payment program that is designed to last for years, usually 3 to 5 years. On your behalf we propose a “Chapter 13 Plan” through which usually you pay some (and rarely all) of your debts over time. Getting into something that takes years instead of months may not seem to make sense, but in certain situations it is by far the better option. Some people can only file Chapter 13, for example if their income is too high to qualify for Chapter 7. But Chapter 13 also has some huge advantages for people in certain situations—including those with large child or spousal support arrearage.

Chapter 13 gives you the ability, not available in Chapter 7, to STOP ALL COLLECTIONS AGAINST SUPPORT ARREARAGE, AND TO PAY OFF THAT ARREARAGE OVER TIME WHILE UNDER THE PROTECTION OF THE BANKRUPTCY COURT.  Here’s how it works.

The minute your Chapter 13 is filed, the automatic stay referred to above does NOT stop your obligation to pay ONGOING support payments, BUT IT DOES IMMEDIATELY STOP collections of ALL ACCRUED SUPPORT THAT YOU LEGALLY OWE AS OF THE MINUTE YOUR CASE IS FILED to give you the opportunity to propose an appropriate Chapter 13 Plan. And if your case is handled appropriately, that protection lasts throughout your Chapter 13 case. BUT YOU MUST MEET each one of the following conditions:

  1. Make ALL your ONGOING support payments during your Chapter 13 case, and do so on time – direct to the recipient or state.
  2. Show in your Chapter 13 Plan that you can pay back all of your support arrearages by making sufficient payments to the chapter 13 Trustee who will pay the arrearage claim on your behalf.
  3. Your Chapter 13 Plan gets “confirmed,” or approved by the bankruptcy judge.
  4. You pay your Chapter 13 payments as stated in your Plan, and meet any other conditions of your Plan.

But Be Careful . . .

  1. The timing of your Chapter 13 filing is critical. Make sure you provide us with your divorce decree and clear documentation about exactly when your support payments are legally due. Otherwise you could have a support payment which you expected to be paid over time as part of the support arrearage instead be unexpectedly due soon after filing, putting you in a cash crunch and jeopardizing your case from the start.
  2. Keeping current on your ongoing child and spousal support is absolutely critical in your Chapter 13 case. You may not even be paying support arrearage through your Plan, or you may have paid off the arrearage through your still-continuing Chapter 13 case (since support arrearage is paid before many other types of debts). Regardless, IF YOU FAIL TO KEEP CURRENT ON YOUR ONGOING SUPPORT PAYMENTS, YOUR CHAPTER 13 CASE MAY QUICKLY BE DISMISSED, USUALLY WITH VERY BAD CONSEQUENCES.
  3. You or your ex-spouse generally can go back to divorce court, at any time in your Chapter 13 case, to try to change the amount of ongoing support based on changed circumstances. You must keep paying the previously ordered payments until it is legally changed by the divorce court, and then pay the new amount, whether it is smaller or larger, to stay in compliance with your Chapter 13 case.

 

Conclusion

As should now be clear:  paying your support arrearage through a Chapter 13 case is a powerful tool, but one that has to be used very carefully. So getting quality legal advice about all this is crucial. Many bankruptcy attorneys do not know much about divorce law, and vice versa. At our law firm, Greg Oliveros and Mike O’Brien have been working together in these two areas for many years, and so are highly experienced in how these two fields interrelate.  You can reach us through the “Contact Us” tab at the top of this page. Or you can call us at 503-786.3800 to set up a free consultation. Ask for Greg if you want to talk initially about divorce, or ask for Mike to talk about bankruptcy.