Bankruptcy and Domestic Support Obligations
Feb. 21, 2023
If you’re at the point in your financial struggles when you’re thinking about filing for bankruptcy, there are many things you’ll need to consider first. For many people, bankruptcy is a difficult yet necessary step to help them get back on their feet financially.
However, there are limits on how much bankruptcy may be able to help you, and you need to understand upfront which of your debts will be discharged when you file and which debts are exempt (meaning you’ll still be responsible for paying them). Specifically, those with a current domestic support obligation (DSO) will still be responsible for paying this after filing for bankruptcy, but the exact details of this will change depending on the chapter you file under.
For help understanding the connection between child support and bankruptcy or to consult with a bankruptcy attorney, reach out to the Hunt Law Firm serving those in DeSoto, Texas, and throughout Dallas and Fort Worth.
How Does Bankruptcy Affect Domestic Support Obligations?
When you file for bankruptcy, you do so because you’re unable to keep up with your debt obligations and need the courts to intervene. They do this by assessing your financial situation, reviewing all your debt and your ability to pay, then discharging (removing) certain debts that you’ll no longer be responsible for paying. There are two main types of individual options, chapter 7 and chapter 13. They are structured differently but they both have similar rules on what debt is dischargeable and what isn’t.
Common examples of dischargeable debts are consumer debts like credit cards, car loans, personal loans, medical debt, utility bills, or back rent. However, there are other types of debt that are non-dischargeable with the most common being domestic support obligations like alimony and child support, back or unpaid taxes, or student loans. Thus, even if you’re approved for bankruptcy, you’ll still have to pay these back. And of these, child support is the highest priority for non-dischargeable debt.
Chapter 7 Bankruptcy and Domestic Support
The relationship between chapter 7 bankruptcy and alimony or child support is fairly clear. With this type of bankruptcy, your eligible debt is immediately discharged (typically within six months), and then you’re left with only your non-dischargeable debt.
In a normal chapter 7 filing, once your petition has been submitted to the courts, an automatic stay will be put on your accounts. This means that creditors must stop all efforts to collect on past-due debts. The stay does not apply to child support though and this includes any automatic withholdings from property or paychecks. Furthermore, any assets you’re required to sell per the terms of your filing will be used first to pay domestic support orders.
Chapter 13 Bankruptcy and Domestic Support
The rules about chapter 13 bankruptcy and child support are similar to chapter 7, regarding what’s non-dischargeable. However, the requirements of chapter 13 filing look quite different.
Chapter 13 is also called a wage earner’s plan because it’s ideal for those who have a steady source of income and can pay some of their debts, but they need a structured plan in place to do so. Under chapter 13, you aren’t required to sell assets, but you are required to submit to a payment plan for three to five years to address your unpaid debt.
At the end of this period, if you’ve made good on all your payments, your eligible debt will be discharged. However, this can only happen after you prove you’re current on all child support payments. Your plan will include any back-due payments and require you to stay current on all future payments as well.
Are There Exceptions to the Rule?
If you think your situation may be different, you may be wondering if your domestic support obligations will be discharged in bankruptcy. The answer is likely not. There are a couple of exceptions that may apply to you, but these mostly refer to alimony payments.
One such case has to do with legal wording. If, in your divorce decree, it spells out conditions that you’re supposed to pay a certain amount to a spouse, but it’s not legally “alimony,” then a judge may deem this dischargeable. Or, in rare cases where the alimony collection has been transferred to another person, it could be discharged. Both these cases are uncommon, but if you think it may apply to you, you should consult with an attorney.
Guiding You Every Step of the Way
While bankruptcy can be a positive and life-changing decision for many people, there are still financial obligations it won’t affect, most notably domestic support. That said, filing for bankruptcy can still make a huge difference and will likely free up your expendable income to help you meet these expenses. For help sorting through all of this, reach out to the Hunt Law Firm in DeSoto, Texas.