Can Child or Spousal Support Ever Be Written Off in Bankruptcy?

Posted by Kevin on June 11, 2012 under Bankruptcy Blog | Be the First to Comment

Support is Not Dischargeable, If It’s Really Support

If you owe a debt “in the nature of” child or spousal support, that debt cannot be discharged (legally written-off) in either a Chapter 7 or Chapter 13 case.

The point of the “in the nature of” language is that an obligation could be called support in a divorce decree or court order, and yet not actually be “in the nature of” support for purposes of bankruptcy.  Or, for that matter, the obligation may not be labelled as support in the decree or order, but could be found to be support.  The bankruptcy court makes the call whether an obligation  is “in the nature of” support, and it looks beyond the label given to a debt in the separation or divorce documents. Practically speaking, this often times leads to litigation within bankruptcy proceeding- either a motion or an adversary proceeding.

So what’s an example of a debt which is not really “in the nature” of support?   Well, how about a personal loan provided to the two spouses during their marriage by one of the spouse’s parents. In the subsequent divorce, the divorce decree obligated the other spouse to repay that loan by paying making payments of “spousal support” until that loan was paid off. In that obligated spouse’s subsequent bankruptcy case, that obligation for so-called “spousal support” would likely be seen as one not “in the nature of” support. Instead the court could well see that obligation for what it really is: an obligation for one spouse to pay a marital debt, not one actually to pay spousal support.

Any Possible Benefit from Chapter 7?

No usually.  The best thing that a “straight” Chapter 7 can do to help with your support obligations is to discharge your other debts so that you can better afford to pay your support.

Beyond that there is one other relatively rare situation that can help if you owe back support payments—an “asset” Chapter 7 case.

In most Chapter 7 cases, all of the assets that the debtors own are protected by exemptions, so the debtors keep all their assets. Nothing has to be given to the trustee. Since the “bankruptcy estate” contains nothing, it’s a “no asset” case.

But if all of your assets are not exempt, then the trustee takes possession of the non-exempt assets and sells them.  From the proceeds of the sale, the first priority, after payment of trustee fees, are back support payments.  They get paid, in full, before other creditors get paid (like credit cards).  So if you owe back child or spousal support in an asset case, some or all of it could be paid this way.

Any Possible Benefit from Chapter 13?

Although a Chapter 13 case does not discharge support obligations any better than a Chapter 7 one, it still gives you a potentially huge advantage: Chapter 13 stops collection activity for back support obligations. Chapter 7 does not. This is significant because support collection can be extremely aggressive.  In many states, the debtor can lose his or her driver’s license.

In addition to stopping the collection effort, Chapter 13 provides you a handy mechanism to pay off that back support, usually allowing you to pay that debt ahead of most or all other debts.  That usually translate into lower payments to your other creditors; in effect allowing you to pay your back support on the backs of other creditors