One of the most common reasons people consider bankruptcy is due to financial stress. But when family law obligations, such as child support and spousal maintenance, are involved, most folks are unsure if bankruptcy will relieve them from paying those obligations. The truth is, family support obligations are handled quite differently from all other debts. If you are considering bankruptcy, it is important to know how family law obligations are handled under federal bankruptcy law and family law in the State of Indiana.
Child support and alimony are not dischargeable in bankruptcy
One of the most important rules to be aware of is that child support payments and spousal support (commonly known as alimony) cannot be discharged in bankruptcy. This is because federal law considers child support payments and spousal support payments to be domestic support obligations (DSO). This means that these payments are given special legal protection since they are intended to provide support for a spouse or a child. Regardless of whether a person chooses to file a Chapter 7 or Chapter 13 bankruptcy, child support payments and spousal support payments will always be fully enforced. This means that a person will always be required to continue making payments even after the bankruptcy proceeding has been completed. This means that if a person has been delinquent in making payments, they will still need to pay what they owe.
Bankruptcy can still affect your overall financial situation
While bankruptcy won’t relieve your support responsibilities, it can nonetheless alleviate financial pressures in other ways. By discharging some unsecured debts, such as credit card debt, medical bills, and personal loans, bankruptcy can free up money to pay support.
For individuals struggling with overwhelming debt due to divorce, financial relief may make it easier to meet support responsibilities and avoid further legal trouble.
Chapter 13 bankruptcy and support arrears
Although bankruptcy does not discharge unpaid child support or alimony, the bankruptcy process of Chapter 13 can offer a tool for making timely payments on back support and alimony.
Under Chapter 13 bankruptcy, an individual can enter into a bankruptcy repayment plan that lasts from three to five years. This allows for the repayment of back support and alimony payments over a period of time rather than all at once. However, the individual must continue making regular support payments (as well as their arrears) while the bankruptcy is still open.
If an individual does not make timely payments during the bankruptcy process, the bankruptcy case could be dismissed.
Support obligations receive priority in bankruptcy
Another important consideration is that child support and spousal maintenance are given a “priority” status in bankruptcy cases. This means they must be paid before other debts.
In some cases, a trustee in a bankruptcy case is allowed to use certain funds available to pay any outstanding support payments before paying other debts.
Finally, an individual must certify that all domestic support obligations are current to receive a Chapter 13 bankruptcy discharge.
Talk to a Danville, IN, Bankruptcy Attorney Today
Chris Arrington represents the interests of Danville residents in family court. Call our office today to schedule an appointment, and we can begin discussing your next steps right away.