In our last blog post we said that, very broadly speaking, if none of your unsecured debts are “priority” ones, you’d lean towards filing a Chapter 7 “straight bankruptcy” case. And if you did have a “priority” debt, or more than one, and the amount owed is relatively large, you’d lean towards filing a Chapter 13 “adjustment of debts” case.
The reason is that Chapter 7 usually discharges (legally writes off) ordinary unsecured debts quickly, but doesn’t have much power over “priority” debts like Chapter 13 does.
A debt for unpaid child or spousal support provides a great example.
Ongoing vs. Past-Due Support
Let’s first make clear what debt we’re talking about. We’re NOT talking about trying to change child or spousal support obligations that are not yet due. You have to go back to the domestic relations court to change (reduce or eliminate) your support obligations going forward, if you have grounds to do so.
Instead the debt we’re talking about is the amount of support that is past-due at the time you file your bankruptcy case.
The Sacred Debt
Other kinds of “priority” debts can be discharged under certain circumstances. For example, past-due income taxes can usually be discharged after just waiting a few years.
So can either bankruptcy help here at all?
Some but Very Limited Help in Chapter 7
The only way Chapter 7 helps is indirectly, by discharging all or most of your other debts so that you can afford to catch up on your unpaid support.
In some circumstances you or your attorney can negotiate terms for catching up with your ex-spouse or with the support enforcement agency handling the matter. If getting rid of your other debts gives you the financial ability to enter into such a negotiated arrangement, Chapter 7 would be the way to go.
Chapter 7 Limitations
But often there isn’t room for negotiation. The ex-spouse or support enforcement agency may be no longer willing to negotiate payment terms. Or, filing a Chapter 7 case may not free up enough money in your monthly budget to catch up as needed. Sometimes you have other troublesome debts—a mortgage heading for foreclosure, income taxes, student loans, a past-due vehicle loan—which continue being owed after you’d finish your Chapter 7 case. They would suck up your money not leaving enough to cure your past-due support debt fast enough.
The huge related practical problem is that Chapter 7 does nothing to stop your ex-spouse or support enforcement from continuing or starting collection efforts against you. The “automatic stay” which stops most other creditor collection efforts does not apply in Chapter 7 to support obligations. So you have no leverage and no protection.
Significant but Conditional Help in Chapter 13
That’s the big difference with Chapter 13. IF you strictly follow certain conditions, the collection of past-due support obligations IS stopped by a Chapter 13 filing. And they continue being stopped throughout the 3-to-5-year course of the Chapter 13 case as long as those conditions continue being met.
The conditions are:
- The Chapter 13 payment plan earmarks enough money to pay the back support debt in full.
- You pay any ongoing monthly support payments on time, especially the first ones due after the Chapter 13 case is filed.
- You pay your monthly Chapter 13 plan payments on time throughout the case, since that’s how the past-due support payments will be paid.
If you follow these conditions your ex-spouse and the support enforcement agency will not be able to take any collection actions against you during the case. And by the end of the case you’ll be current on the support, and will be free and clear of all other debts other than any still ongoing monthly support and perhaps other long-term debt (such as a home mortgage).