Whether you’re the custodial or the noncustodial parent, bankruptcy and child support issues are joined at the hip. Recognizing that fact, the 2005 Bankruptcy Abuse Prevention And Consumer Protection Act of 2005 specifies that bankruptcy trustees must notify state child support enforcement agencies so they may participate in the bankruptcy case.
Statistics from the U.S. Government and Accounting Office reveal that, of all people filing bankruptcy nationwide last year, custodial parents represented 10% and non-custodial parents 7%. As an Indiana bankruptcy lawyer for almost 25 years, I know none of these hundreds of thousands of bankruptcy cases was filed with the specific purpose of getting child support payments discharged by the court. That’s because, as a general rule, support obligations you already have from a divorce (child support, life and health insurance premiums, and alimony) cannot be changed by filing bankruptcy (see What Can’t Debt Collectors Do?) What’s more, if you’re the one receiving payments and you file bankruptcy, generally the support money is exempt in the bankruptcy.
Divorce laws and bankruptcy laws are each too complex to be covered in a short blog, but, generally speaking, there is one way filing bankruptcy can help relieve child support debt. As I explained in “The Cannots In The Bankruptcy Can”, while you’re expected to live up to child support and alimony obligations, filing bankruptcy can buy time to catch up with back payments by spreading those out over time in a Chapter 13 bankruptcy.
In child support situations, the bankruptcy process can be helpful in two principal ways and help both parents, the noncustodial as well as the custodial parent. First, for the parent making child support payments, bankruptcy can help eliminate other debt, freeing up dollars for the child support. While child support payments must be made in full, a Chapter 13 bankruptcy can spread back payments over three to five years.
The second way the bankruptcy can help is by simply sorting out the numbers, so that both parties are clear about the payments. In fact, the “creditor parent” is allowed to intervene in the bankruptcy proceeding, without charge, to contest the amount of arrears.
There’s no question that divorce and bankruptcy are connected, and that’s particularly true where children are involved. And, while my practice is in the field of bankruptcy law and not divorce, I know how crucial it is to have your professional advisors (in this case your divorce attorney and your bankruptcy attorney) stay in touch with each other.
Keep in mind that for both parents, the two legal proceedings, divorce and bankruptcy, have the same basic goal in common – helping you make a fresh start!