For many single parents and remarried divorcees, the question of whether to file for bankruptcy depends on how that bankruptcy affects child support. Find out what to expect from the bankruptcy court if you receive child support, pay for your children’s care, or have accumulated unpaid arrearages in family court.
Past-due child support can add up quickly, especially when you lose your job or have unexpected medical bills on top of your support payments. These arrearages can quickly accumulate to thousands of dollars in debt. However, bankruptcy may not be the way to put those debts behind you.
The first, most important thing to know about how bankruptcy affects support is that you can’t get out of paying for your children’s care by filing a bankruptcy petition. Child Support is a non-dischargeable debt. That means if you are the parent paying support, whatever you owe when the petition is filed, you will still owe when the bankruptcy is discharged, unless you have paid the debt in the meantime. For many Michigan residents, that means that a Chapter 7 bankruptcy does not make sense when their largest debts come in the form of child support arrearage. In these cases, the right answer may be to file a motion with the family court requesting a monthly payment plan instead.
However, if you qualify for a Chapter 13 bankruptcy payment plan, you may be able to include your support arrearage into that plan and reduce the amount you have to pay your other creditors. Domestic support obligations (including child and spousal support or alimony) are considered high-priority unsecured debt (meaning there is no collateral making sure you pay what is owed). That means when you and your bankruptcy attorney put together your payment plan, the full balance of your child support arrearage gets paid first. Whatever is left over in your budget gets spread out between your lower priority creditors (like credit card companies and medical bills). If there isn’t enough to go around, at the end of the 3 to 5 year payment plan, the rest of your debt will be discharged.
You may have heard that a bankruptcy petition triggers an automatic stay, putting a halt to collections efforts against you. If you have an active child support case or have received an order to show cause for felony non-support, you may hope that a well-timed bankruptcy petition will put that on hold. Unfortunately, it won’t. While other forms of domestic court cases (like divorce) can be paused while your bankruptcy is pending, child support enforcement proceedings will carry on. If you do plan to file for bankruptcy and have a pending support enforcement matter, you may want to negotiate a payment plan before the petition is filed.
If you are the single or remarried parent receiving support from your ex-spouse or child’s other parent (co-parent), you probably rely on that income to pay your mortgage and feed your children. When your debts pile up and bankruptcy becomes your best option, you may worry what will happen to the money you receive every month from the Friend of the Court’s disbursement unit (MISDU) under a Michigan Uniform Child Support Order and Income Withholding Order.
Under a Chapter 7 bankruptcy, all non-exempt assets in your possession at the time of the bankruptcy can be used to satisfy your outstanding debts. (Support payments you receive after the petition is filed are yours to keep.) That means the bankruptcy trustee may take money you have received as child support and have not yet spent and give it to your creditors as payment of your debts.
The Federal Bankruptcy Code Exemptions include child and spousal support (alimony) payments to the extent they are actually necessary for the daily support of you and your children. However, Michigan state law doesn’t have that same exemption. Under Michigan law, you must decide whether to apply federal or state exemptions across the board -- you can’t pick and choose which exemptions work best for you. Talk to your bankruptcy attorney about whether it makes sense to hold on to your child support payments while giving up other Michigan exemptions. The answer will depend on your assets and your priorities after the bankruptcy.
If you have filed for a Chapter 13 payment plan instead, your child support receipts may be key to completing the program and having your remaining debts discharged. Chapter 13 distributes your disposable income between all creditors over the course of 3 to 5 years, but you have to have enough income to qualify. While much of your support will go to the family’s ongoing bills, some may be able to be distributed, helping you to qualify for Chapter 13 and get out of debt.
Child support is not like a car loan. It isn’t something you take on all at once and then pay down over time. Instead, Michigan law says each month of child support is due and owing on the month it is incurred. Instead of one bill with 12 payments per year, child support is like 12 new individual bills every year, all of which must be paid. That means regardless of whether you file a Chapter 7 or Chapter 13 bankruptcy petition, your future support obligations will live on, and you will be responsible to pay for them.
That is why it is important for you to talk to both a bankruptcy attorney and a family court lawyer when a bankruptcy is motivated in part by unmanageable child support payments. You may be able to file a motion in the family court to lower your future payments, but the timing of that motion should be coordinated with your bankruptcy attorney based on the type of bankruptcy petition you file, and your legal basis for modifying the support order.
At John A. Steinberger & Associates, P.C., we have helped many clients whose financial circumstances were affected by child support. We will work with you to decide whether your best plan is a Chapter 7 bankruptcy, Chapter 13 payment plan, or a motion in family court. We are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.