Chapter 13 gives you a powerful, reasonable, flexible, and even calm procedure for catching up on your past-due child or spousal support.
The last two weeks we’ve shown how Chapter 13 can stop the collection of unpaid child and spousal support. First we talked about how this benefit is much better than Chapter 7 can provide. Then we focused on the ongoing conditions you must meet to keep up this protection.
But there’s a second benefit of Chapter 13 that deserves attention. It doesn’t just stop the collection of unpaid support. Chapter 13 provides a powerfully flexible way to catch up on that support debt.
Why This Is a Huge Benefit
Whatever child or spousal support you owe at the time of your bankruptcy filing, you can’t write off (“discharge”). It’s among the relatively few kinds of debts that bankruptcy does not discharge under any circumstances. See U.S. Bankruptcy Code Sections 523(a)(5) and 101(14A). So you have to pay it, whether you file bankruptcy or not. Whether you file Chapter 7 or 13 or any other kind of bankruptcy.
So this is a debt you have to pay. The issue is what is the easiest, most financially sensible and low-stress way to do so.
As we discussed in our blog post 3 weeks ago, Chapter 7 doesn’t help much. It doesn’t stop the collection of unpaid support at all. You’re on your own catching up on any unpaid support.
Chapter 13 does stop the collection of unpaid support immediately, and continues to protect you as long as you meet some ongoing conditions. What Chapter 13 also does is provide you the tool to pay off the support debt. That tool is a court-approved payment plan for all your debts, based on what you can actually afford to pay. That payment plan enables you to catch up on your support debt over time. The plan works into your budget all your other debts—especially other debts very important to you. So you can catch up on your support at a sensible pace without being hounded about it.
How the Chapter 13 Payment Plan Works
How could this possibly work in real life? Consider the following:
- The Chapter 13 payment plan is based on your actual income and reasonable expenses.
- The plan prioritizes debts in a way that’s generally in your favor.
- Other debts sometimes get your money ahead of the support debt, usually to your benefit.
- You have 3-to-5-years to catch up on all your unpaid support debt.
We’ll take these four one at a time.
1. Based on Actual Income and Expenses
The Chapter 13 payment plan usually involves a single monthly payment to all of your creditors. (Although sometimes a special debt is paid separately, like a home mortgage.) That single monthly payment is based on what you can actually afford to pay. It’s based on your actual income and reasonable expenses. The income is a projection based on your very best estimate of how much you’ll make each month. The expenses try to cover all your expenses, including ones that don’t happen every month. (For example, vehicle maintenance and repairs, and medical expenses.)
The point is to determine how much you can truly and reasonably afford to pay monthly in a sustainable way. It should not cause you anxiety. You should feel confident that you can fulfill your payment plan.
2. Prioritizing Debts
A Chapter 13 plan basically divides debts into those you must pay in full and those you pay only as much as you can afford to pay.
The unpaid support debt is in the first category. This category may also include other such must-pay debts like recent income taxes. It can also include secured debts like vehicle or mortgage obligations.
The second category usually includes all other debts—your “general unsecured” debts. These you usually pay only as much as you can, if there’s any money left over for them at all.
So Chapter 13 lets you focus your limited financial resources on those debts that you need to pay. And it gives you an extended time to pay them, so that you can afford to do so.
3. Paying Other Debts Ahead of Support
Outside the protection of Chapter 13, arguably no debts come ahead of unpaid support. That’s because the law makes the support enforcement collection tools so powerful.
But within the protection of a Chapter 13 case and plan, those aggressive collection tools are tamed. So you don’t necessarily pay an unpaid support debt first in the plan. You may have other debts—especially a secured debt or two—that you can pay first. So if you are behind on your mortgage, or doing a cram-down on your vehicle loan, you can often pay these ahead of your support debt. If you owe other “priority” debts like recent income taxes, your plan usually pays your support debt along with such other important debts.
With Chapter 13 you’re not at the mercy of these important creditors. Your court-approved payment plan gives you a great way to deal with them all, including the support.
4. Pay Off Unpaid Support by Case Completion
As mentioned, you have as long as 5 years to catch up on your unpaid support. Your official plan does need to include enough money to accomplish that (and everything else that must get paid). And you do need to fulfill the terms of that plan successfully to the end. Of course if you have an ongoing support obligation you have to keep paying that. (It will be included in your monthly expenses.)
Then by the end of your payment plan you will be current on your support. You’ll have paid off or gotten current on all your other special debts. Whatever you haven’t paid on your general unsecured debts will get discharged. And you’ll be free and clear of all debts.