Financial support for children is of primary importance, and Kentucky gives child support obligations priority in any bankruptcy proceeding. Filing for Chapter 13 or Chapter 7 personal bankruptcy will not discharge child support arrearages or put a stop to a payee’s obligation to continue monthly payments.
It is very important for child support, as well as alimony payments, to continue throughout bankruptcy proceedings. If court-ordered support stops, it can lead to garnished wages and other consequences, including suspension of the driver’s license or even incarceration.
Note that if a Kentucky bankruptcy filer lacks resources to pay his or her child support obligation, a modification order can be pursued through family court. Payments can be legally modified if circumstances have changed substantially after the initial support order. (However, if future payments are reduced, the payee will remain responsible for all unpaid back child support.)
Child Support in Chapter 7
Filing for Chapter 7 places an automatic stay on creditor actions, including wage garnishments, but this does not apply to child support. Any pending court actions to establish or collect child support will remain in process, and if back-payments are owed, collection will be considered a top priority when nonexempt assets are sold. Other creditors, such as credit cards or medical providers, may remain unpaid in deference to payment of child support debt.
Once Chapter 7 is filed, any new property (and wages) acquired remains outside of the bankruptcy estate. This means child support creditors can go after earnings generated during bankruptcy proceedings and will have an easier time of collecting past due payment.
In some cases, filing Chapter 7 can help resolve an issue of child support nonpayment for both parties. As other debts are eliminated in Chapter 7, more income is freed up for necessary child support.
Chapter 13 Payment Plans
Chapter 13 bankruptcy calls for reorganization of debt through the initiation of a court-ordered payment plan. A child support obligation will, again, be given precedence, and unpaid debt will not be discharged. In fact, child support debt must be paid in full before a Chapter 13 action can be discharged.
In addition to payments for child support arrearages, monthly payments must continue and remain current. If child support payments stop, the court can lift the bankruptcy stay to allow for collection through wage garnishment. Certification of current status on all domestic support obligations will be required for a Chapter 13 bankruptcy discharge.
In many cases, Chapter 13 payment plans eliminate the need or likelihood of a separate legal action to collect unpaid amounts. If accumulated debt has interfered with a well-meaning parent’s ability to pay child support, filing for Chapter 13 can help him or her pay child support more comfortably. Since unsecured debts may be discharged, more income can be earmarked for child support obligations.
Divorce and Bankruptcy
It seems divorce and bankruptcy often go hand in hand, but filing for these proceedings at the same time is generally not a good idea. In most cases, and if possible, it is better to complete a bankruptcy filing first, so you can eliminate debt before dissolution of your marriage.
Because everyone’s situation is unique, there are some instances where it is better to file for divorce before filing for bankruptcy. It is always best to speak to a Kentucky bankruptcy attorney before making these important decisions.
The experienced attorneys at Bunch & Brock have assisted many Kentuckians with Chapter 7 and Chapter 13 bankruptcy. As always, we are here to help.
