Before filing bankruptcy, should you pay child/spousal support debt in the meantime? This may depend on whether you file Chapter 7 or 13.
Our last three blog posts have been about what you should and should not do before filing bankruptcy. Three weeks ago we focused on keeping your assets, especially any retirement funds, and collateral, such as home or vehicle. Two weeks we discussed whether to take on more debt, maybe to buy time and not need to file bankruptcy. And last week we looked at whether you should file any unfiled income tax returns, and pay income taxes.
Today the question is whether to pay unpaid child/spousal support before filing bankruptcy. As with all of these issues, there are some general principles worth getting to understand. But everybody’s situation is truly unique. So you really do need the help of an experience bankruptcy lawyer to apply these principles to your personal situation. This blog post can be the first step towards becoming well-informed about your options. It’ll help you ask the right questions so that you can make the best decisions.
Child/Spousal Support Collection
If you haven’t already learned the hard way, the collection of child and spousal support can be extremely aggressive. If you are behind on support, your ex-spouse and the support enforcement agency have tremendous tools to use against you to make you catch up.
In virtually all states an ex-spouse—or the local support enforcement agency—has extraordinary ways to collect unpaid support.
These include ways of grabbing your money directly. We’re talking garnishing your wages and bank accounts, and grabbing income tax refunds.
But the collection tools also include ways to hurt you so that you’ll be forced to pay. Your ex-spouse and support enforcement can often put liens on your possessions and your real estate. Your ex-spouse/support enforcement might then take these assets to sell and pay the support debt. They can often suspend your driver’s license. This includes a commercial driver’s license, so you can’t work if have a job requiring the license. They can even suspend your professional or occupational license. That could prevent you from legally working in your profession or business as a nurse, doctor, physical therapist, lawyer, realtor, insurance agent, mortgage broker, etc.
On top of all this, you could lose your hunting, fishing, boating and other recreational licenses. You could even be ineligible to receive a U.S. passport.
Bankruptcy Doesn’t Discharge Unpaid Child/Spousal Support
No form of bankruptcy can discharge (legally write off) unpaid child/spousal support. So you might as well prioritize paying the support, right? Maybe.
Stopping Support Collection
Also, Chapter 7 “straight bankruptcy” does not directly stop, or even pause, any of the above forms of support collections. Even more reason to put every dime into catching up on the support, right?
Maybe. But first be aware that Chapter 13 “adjustment of debts” CAN stop the collection of unpaid support. Furthermore, a Chapter 13 official payment plan can give you 3 years, or often as much as 5 years to catch up on any child/spousal support. Under the right circumstances you can be protected from support collection throughout those years of catching up.
So when on the brink of bankruptcy, it might make practical sense to not pay a support payment. It may make sense to pay that unpaid support over time instead. You might need to use your precious money for some other extremely urgent purpose.
This may be sensible if you are currently not being hit with ongoing support collection efforts. It would also be important that you don’t have reason to believe such efforts are imminent. Given how aggressive those efforts can be, this is a delicate calculation.
Determining Whether Chapter 13 Is Right for You
Be aware this particular scenario of not paying support only makes sense if you end up filing under Chapter 13.
As stated above, only Chapter 13 stops the collection of unpaid support arrearage. The more common Chapter 7 type of bankruptcy does not.
(Note that your obligation to pay ongoing monthly support after filing the Chapter 13 case continues. So collection of the ongoing monthly support can continue.)
Only Chapter 13 gives you a protected and extended method of catching up on your unpaid support. Chapter 7 leaves you at the mercy of your ex-spouse/the support enforcement agency, and their collection tools listed above.
The decision whether to file a Chapter 7 vs. Chapter 13 one is always a multi-faceted one. The Chapter 7 procedure itself is usually less expensive and takes much less time. But Chapter 13 gives you much stronger tools, not just with unpaid child/spousal support. If you’re behind on a mortgage, are in a difficult vehicle loan, owe income or property taxes, and many other challenging situations, Chapter 13 can work legal miracles.
Whether these powerful tools are worth the extra money and time is a multi-faceted decision. It’s one that definitely requires legal advice.
An Urgent Decision
By its very nature, whether or not to pay a child/spousal support payment is a very urgent decision. If you are in the midst of support collection efforts, those efforts are likely causing you significant financial pain. If that’s not happening yet, they can occur at virtually any time. You have to make some big decisions quickly.
The initial meeting with a bankruptcy lawyer is usually free. The sooner you get that initial legal advice the sooner you’ll know whether you should pay the child/spousal support. The sooner you will feel the relief of knowing where you’re heading. The sooner you will be turning the corner to a calmer financial life.