The concept of filing for bankruptcy is one that has left many confused on just how effective and expansive it is. The relationship between bankruptcy and child support, especially, is one that needs further clarification—does bankruptcy affect child support? Is it possible for a person with a huge backlog of unpaid child support to avoid paying his or her dues with the aid of bankruptcy?
The short answer is NO. However, the question is one that needs further clarification, as the point of bankruptcy is to help reorganize finances and ease the burden of debts on the person filing the process.
The effect of bankruptcy on child support can be tackled from two perspectives. The first is that of a person paying child support who decides to file a Chapter 7 bankruptcy. The second is a person receiving child support payments who is in the process of filing for bankruptcy.
PARTY MAKING CHILD SUPPORT PAYMENTS
Do you have to continue payments of child support during bankruptcy, and do you even need to worry about accrued missed payments? The answer to both questions is, yes you do. Child support is of vital interest to the state and as such occupies a unique position in the hierarchy of debts. The state places a premium on the importance and well-being of the child, making child support payments a priority debt.
Chapter 7 Bankruptcy: Priority Debts
When a person starts the process of filing for bankruptcy under Chapter 7, a trustee is appointed to take charge of this process. The trustee is charged with distributing the proceeds earned from the sale of such a person’s bankruptcy estate. A bankruptcy estate is property— except exempt property—that is auctioned off to service debt.
After selling off non-exempt property, the trustee must then distribute the money to the list of creditors. But not all creditors have the same level of importance. Priority debts, due to their critical nature, are the first debts that are paid off with the earnings from the estate. These debts are usually owed to the state or its institutions and legally mandated.
This is the class of debt child support payments fall within. It is usually among the first debts to be serviced during a bankruptcy proceeding. The law recognizes the critical role these payments have on the society—going towards the upkeep of children.
Examples of priority debts in a Chapter 7 case include:
- Alimony and spousal support
- Child support
- Contributions to employees’ benefits plans
- Debts owed to farmers and fishermen (up to $6,325 per head)
- Income taxes, customs, duties, penalties owed to federal, state and local authorities.
- Personal injury or death claims resulting from a person’s driving while under the influence.
Priority debts have a special place in the scope of Chapter 7 cases, in the sense that even when you have been granted a bankruptcy discharge, any left-over priority debt must be paid. These debts are non-dischargeable—they must be paid in full and getting a discharge does NOT grant you reprieve from them.
The Automatic-Stay provision, which prevents creditors and collectors from coming after you to collect their debts during the bankruptcy process is ineffective with regards to child support. Agencies are still empowered to pursue you for missed payments, to the full extent of the law. Any income you earn after you file for bankruptcy leaves you eligible to a child support claim or lawsuit.
You must make prompt regular child support payments through the course of bankruptcy, by it being a priority debt. Failure to make payments or multiple missed payments will more often than not result in a lawsuit, which would only compound your financial situation.
However, despite child support being non-dischargeable, Chapter 7 bankruptcy can make your overall debt burden much lighter. If the proceeds realized from the auction of your bankruptcy estate is not enough to cover non-priority debts like credit card debts and car loans, these debts are discharged, giving you some breathing room to focus on paying off priority debts.
How Does Bankruptcy Affect Income After Filing?
Any income earned after the date you filed for bankruptcy is not a part of your bankruptcy estate—the property your trustee and creditors have access to—and as such is not governed by your bankruptcy agreement. Agencies and collectors in charge of obtaining child support payments are empowered to pursue payments from these post-bankruptcy earnings.
PARTY RECEIVING CHILD SUPPORT
While we have outlined the fact that filing a Chapter 7 bankruptcy will not get you out of paying child support payments, there is another side to this topic. How does bankruptcy affect child support payments, if you are the recipient of such subsidies? Is the income derived from child support payment a part of your bankruptcy estate—from which your debtor is paid off?
Any income you received from child support payments is exempt, meaning you get the total amount. This is because, the welfare of your children/dependents outweighs the needs of the other creditors. The payments are expected for the upkeep and maintenance of the child, and as such, are technically owned by such a child while you act as a trustee.
Whether or not you have spent the bulk of such payments or not, is irrelevant, any income that is accrued from child support payments is yours to keep in its entirety. Unspent child support payments are still exempt in the majority of state in the USA.
- Child Support Income Earned Before Bankruptcy
For child support payments in your possession, before you file for bankruptcy, the court will deem it a part of your bankruptcy estate. However, the difference between child support income and the majority of your other assets is what action the trustee can take on them. The trustee in charge of your bankruptcy will not disburse money to your creditors from your child support income. Such income is classed as an EXEMPT asset.
What is Exempt Property?
Under bankruptcy law, you can classify some of your assets, property or otherwise, as exempt assets—for some reasons. Exempt assets belong wholly to you—the trustee cannot utilize/sell these assets in the discharge of your debts.
Although the hallmark of bankruptcy is the power granted by the court to the trustee to sell off your assets to pay off your debt, the law still allows you certain rights. By exempting specific property from the bankruptcy estate, you still have a reasonable amount of belongings to live a reasonably comfortable life. Bankruptcy will not necessarily leave you homeless or without any clothes. Federal and state bankruptcy law has put certain exceptions in place to ensure people still have a solid foundation to rebuild from. These bankruptcy exemptions vary from state to state, but the idea is still the same across the country. Essentials belongings and benefits are all exempted from the estate.
Property that is not classed as exempt will be sold off to fund debt repayment efforts by the court-appointed trustee. The following are typical examples of non-exempt property:
- Liquid cash or funds in bank accounts
- Securities—shares, stocks, treasury bills, and bonds
- Collectors’ items—coin and stamp collections, antiques, artwork.
- Musical instruments (except they are the debtor’s instrument of trade)
- Homes beside the primary residence, including vacation property.
- Automobiles and luxury vehicles
These examples are deemed non-essential and can be claimed by creditors, or sold off in an auction by the trustee. Exempt property, however, cannot be claimed by creditors or sold in auctions.
Typical examples of exempt property in Chapter 7 bankruptcy include:
- Essential belongings—clothing, furnishings, and household fixtures and appliances (up to an amount deemed reasonable by the court)
- Motor vehicles (up to a fair amount)
- Sure jewelry, up to an amount considered reasonable and appropriate.
- Tools or instruments of trade deemed necessary.
- Unpaid Wages
- Injury claims
- Social security, welfare, unemployment benefits held in a bank account
Child support has been classed by Congress and the legislative arms of the majority of states as exempt property. The interest of the child is paramount, and as such will not be hindered by the claims of the creditor. While declaring your estate, you should list existing child support payments as an asset and class them as exempt property.
If a trustee attempts to utilize your child support payments or other exempt property to pay off creditors, you are within your rights to start legal proceedings to halt such actions. Speak to a Chapter 7 bankruptcy attorney to get a comprehensive scope on what your rights are, and the extent of the trustee’s authority. By speaking to a learned Chapter 7 attorney Los Angeles, and by extension, Californian laws will be adhered to, to avoid further complications.
Generally, your income from child support payments is exempt from the bankruptcy process, as it is deemed necessary for the wellbeing of the child.
- Income Earned After Bankruptcy
Like the majority of income earned after the date of filing Chapter 7 bankruptcy, you can keep the income earned. Child support received after the bankruptcy process is not part of your bankruptcy estate and is not affected by any bankruptcy-related actions. If your creditors are attempting to claim this income, if you can establish the source and date of such income you get to keep the entirety of such payments.
- The backlog of Child Support Payments after Filing
What happens when you finally receive unpaid child support payments from before you filed for bankruptcy? Are there Chapter 7 bankruptcy child support provisions that cater for such a scenario?
Throughout the United States, back child support payments are considered exempt, allowing you to keep it in entirety. These funds are viewed as necessary for the welfare and survival of the child and are left with the parent/guardian.
While most states have specific laws and provisions for this scenario, a vacuum in the state laws is compensated by the fact that the vast majority of trustees will ‘abandon’ income derived from child support payments. Abandonment of property, in this sense, means that such property is deemed inconsequential to disburse to creditors, and as a result, is returned to the debtor.
Getting Professional Help
It is important to seek a professional opinion before navigating through your bankruptcy case, especially with regards to child support payments and other exempt property. In some cases, trustees may embark on a miscarriage of justice and an overstepping of their powers by trying to dispose of exempt property. This may be due to negligence on the debtor’s end—failing to file such payments as assets and exempt property or an act of ineptitude on the part of the trustee. Speak to one of our Chapter 7 bankruptcy attorneys to get all your bases covered today.
Conversely, certain unscrupulous individuals may attempt to skirt their responsibility to their kids, by hiding behind the curtain of bankruptcy to avoid paying child support. Since the majority of Americans are ignorant of the intricate details of federal and state bankruptcy laws, they may successfully abscond on their obligations. Speak to an attorney today, if your ex-spouse or significant other misses child support payments by a bankruptcy.
Debt management and trying to reorganize one’s financial situation can be challenging and often confusing, especially with the state of the economy. Bankruptcy, despite its negative connotations, can be a smart and financially responsible decision to get yourself out of the seemingly endless abyss of debt.
At WipeAwayDebts we are committed to helping residents of California understand their rights—allowing them to make more financially sound decisions going forward. We have experienced Los Angeles bankruptcy attorneys, working hard to help our clients turn a new financial leaf. Contact us today, to speak to one of our experts, and begin the process of filing for bankruptcy. We will discuss your options, with regards to child support, comprehensively, detailing state-specific rules, and other details that may arise in the future.