Chapter 13 is better than Chapter 7 if you need to stop the aggressive collection of past-due support, if you meet some ongoing conditions.
Last week we showed how Chapter 13 stops the collection of past-due child and spousal support, while Chapter 7 doesn’t. But we ended by emphasizing that anyone can quickly lose this huge benefit of Chapter 13 “adjustment of debts”. Avoiding this requires strictly complying with some conditions. These conditions are arguably sensible ones. But you need to know and understand them so you don’t lose this crucial Chapter 13 benefit. Because these conditions are so important we focus today’s entire blog post on them.
Ongoing vs. Past-Due Child and Spousal Support
But before we get to these conditions we need to make a strong point. We’re talking here about child and/or spousal support that is unpaid, past-due, at the time of the bankruptcy filing. This past-due support is different from ongoing support.
Ongoing support is the support you need to keep paying, usually on a monthly basis, after your Louisville bankruptcy lawyer files your bankruptcy case. Past-due support is any amount of support that you’re behind on as of that filing date. Ongoing support is the support due after that filing date.
Filing bankruptcy does NOT stop the collection of any ongoing support, under either Chapter 7 or Chapter 13. The “automatic stay” that protects you from creditor collections does not apply. (See Section 362(b)(2)(B) of the U.S. Bankruptcy Code—where ongoing support is called “domestic support obligation.”) So, if you are paying support by direct payments, you need to keep paying those after filing bankruptcy. If you are paying through a payroll deduction or by garnishment, those should continue. You can only change those forward-looking payments through the divorce court which ordered them.
Chapter 13 only stops the collection of past-due support—which, again, Chapter 7 does not. (Past-due support is also sometimes called support arrears or support arrearage.) So the conditions we discuss now are ones you need to meet to stop the collection of past-due support.
Inform Your Collector of Support
Your Louisville bankruptcy lawyer’s Chapter 13 filing will immediately stop the collection of past-due support. This does assume that either you or your lawyer informs your ex-spouse or the support enforcement agency about your Chapter 13 filing. The automatic stay applies at the moment of filing, but the creditor needs to know about it to be able to comply. Coordinate this with your lawyer.
Most support enforcement agencies understand this special power of Chapter 13 and will comply immediately. Although sometimes it may take some lawyerly persuasion.
Ex-spouses are more likely under the misimpression that your Chapter 13 filing has no effect whatsoever on your support obligation. He or she probably has never heard about this special benefit of Chapter 13 for past-due support. If so, your lawyer will likely contact him or her, or his or her lawyer if there is one, to inform him or her about the law.
The Conditions to Avoid Collection of Past-Due Support
Once the automatic stay stops collection of past-due support, you’ll lose this benefit if you don’t maintain the following conditions:
1) keep current on your ongoing support
2) show in your Chapter 13 payment plan how you will pay off all the support arrearage during the 3–to-5-year life of the plan
3) consistently make your Chapter 13 plan payments so that you are in fact making continued progress towards paying off the past-due support
4) finish your Chapter 13 case successfully, which includes paying off the entire past-due support
Let’s look at these one by one.
1) Keep Current on Ongoing Support
Assuming you continue to owe ongoing support, you absolutely must keep paying it as long as you are obligated to. Otherwise you’d be going financially backwards instead of forwards. You’d be called on it by the support enforcement agency or your ex-spouse. The very likely result would be that you’d lose the automatic stay protection against collection of the past-due support.
Plus you need to be very strict on the timing. You have to pay the monthly payments precisely by the due dates. Otherwise there’s a good chance that your ex-spouse/support enforcement will inform the bankruptcy court and ask permission to resume collection.
In particular be fully aware of the first support payment due after your Chapter 13 case filing date. For example, if your case is filed on January 25 and your monthly support payments are due on the first of every month, you need to make that first after-filing support payment by February 1. Talk with your bankruptcy lawyer about the timing of your Chapter 13 filing so that you have the funds to pay that first support payment.
2) Payment Plan Includes Planned Pay-off
Bankruptcy law requires you to pay off all your past-due support during the 3–to-5-year life of the plan. Your Chapter 13 lawyer will make the necessary calculations to show how you will so so. Your monthly plan payments will be based on what you can afford to pay to all of your creditors. Incorporated into those monthly payments is money that will go to pay off the past -due support. You and your lawyer have to show that these plan payments are enough to accomplish this.
Otherwise your ex-spouse/support enforcement agency can object to the plan. He/she/it could also ask for permission to resume collections because the plan would not catch up on the past-due support.
3) Make ALL Chapter 13 Plan Payments
Your Chapter 13 plan not only has to pencil out correctly, but you also must pay the plan payments timely. Otherwise you’re not doing what you agreed to do in the court-approved plan. Paying the plan payments on time shows that you are actually making continued progress towards paying off the past-due support.
If you got late on the plan payments, your Chapter 13 trustee could ask that your case get thrown out. (The trustee is the person you pay your plan payments to, and who then pays your creditors.) Or any creditor—including your ex-spouse/support enforcement agency—could do the same. Or could just ask for permission to resume collection.
4) Finish Your Chapter 13 Case
So if you have a good payment plan, and you make all the payments, you’ll eventually complete it successfully. (Your plan very likely has some other requirements and this assumes you comply with them as well.) When you complete your plan, you will have paid off the entire past-due support. So it’s really important that you get all the way to the end of your Chapter 13 case successfully.