If you are behind on child or spousal support, Chapter 7 writes off all or most of your other debts so that you can catch up on your support.
If you are behind on child or spousal support payments Chapter 7 may or may not be a good solution.
Chapter 7 “straight bankruptcy” is the most common type of consumer bankruptcy case. It is more likely to be a sensible solution if 1) the support isn’t being collected aggressively and 2) you don’t owe terribly much. Why? Because:
1) Filing Chapter 7 does not stop collection of unpaid child or spousal support. Chapter 13 can.
2) Chapter 7 does not give you a procedure for catching up on the support. Chapter 13 “adjustment of debts” does so.
So why would you file a Chapter 7 bankruptcy if you were behind on support?
Filing Chapter 7 When Owing Support
Chapter 7 is usually the most straightforward type of bankruptcy. A case lasts only about 4 months from when your Louisville bankruptcy lawyer files it to when it’s completed. A Chapter 13 case involves a formal payment plan that almost always takes 3 to 5 years to finish.
As mentioned above Chapter 13 can stop the immediate collection of unpaid support, and give you time to catch up.
The much quicker Chapter 7 makes sense if you don’t need these kinds of help.
If you stopped paying the debts that Chapter 7 would discharge, could you quickly catch up on support? Would your ex-spouse be willing to accept monthly catch-up payments at an amount you could afford? Or if the debt is being collected by a support enforcement agency, would it accept such voluntary payments? Could you reliably make such payments, while presumably keeping current on the ongoing monthly support?
If you have a feasible way along these lines to catch up on your support obligation during and after your Chapter 7 case, then it may well be your best option.
Other Advantages and Disadvantages of Chapter 13
But you and your Louisville bankruptcy lawyer will discuss two other considerations revolving around your other debts. Chapter 7 and Chapter 13 deal with debts quite differently.
The first consideration is about debts secured by your assets or other ones that you must pay. Secured debts include home mortgages, vehicle loans, and any others with a lien on anything you own. Debts you must pay—besides support—include recent income tax debts. Chapter 13 often handles these kinds of debts much better than Chapter 7. Without getting into the details here, Chapter 13 protects you while you pay such special debts as your budget allows. If you have such debts, how Chapter 13 helps with those may be reason enough to choose that option. Or this, along with the benefits it gives you with unpaid support, may swing you in that direction.
The second consideration is about the rest of your debts—those that are neither secured nor ones you must pay. These are your “general unsecured” debts. Usually you can discharge (legally write off) all or most of such debts in either Chapter 7 or 13. In most Chapter 7 cases you pay nothing on your general unsecured debts. However, in a Chapter 13 case you often pay a portion of these debts. Whether and how much you pay on your general unsecured debts depend on lots of factors. The biggest factors are your income and expenses and the amount of your special debts (secured and otherwise) that you are paying in full. So you need to weigh the benefits of Chapter 13 regarding your unpaid support and other special debts against the likelihood that you would be paying something instead of nothing on your general unsecured debts.
What Happens to Your Unpaid Child/Spousal Support Debts in a No-Asset Chapter 7 Case?
A “no-asset” Chapter 7 case is one in which everything you own is covered by property exemptions. Exemptions usually allow you to keep certain dollar values of assets in various categories. Most Chapter 7 cases are “no asset” ones. If yours is, you’re able to keep everything (with the exception of collateral you decide to surrender).
In a no-asset Chapter 7 case your bankruptcy trustee does not get any of your assets to liquidate and pay to any of your creditors. (That’s why it’s called “no asset.”) Your Louisville bankruptcy lawyer will tell you if yours is expected to be.
Since the trustee doesn’t collect any money to pay your creditors anything, your support debts also receive nothing. So, a support debt gets no money directly from a no-asset Chapter 7 case. You have to deal with the support debt yourself (perhaps with the help of your lawyer), and be prepared to do so right away.