One of the most important distinctions between these consumer bankruptcy options are how they help or don’t help with support arrearage debt.
If you are behind on your child or spousal support payments and you own a home, most likely there is a lien on that home for that unpaid support debt. This means that your ex-spouse (or the support enforcement agency in his or her name) may be able to foreclose on your home through that lien. In any event, the lien is a cloud on your title, very likely hurting your credit and potentially jeopardizing your ability to refinance or sell the home.
The support lien came about one of two ways (or possibly both).
First, your divorce decree is usually in the form of a court judgment, and so creates a continuous judgment lien for whatever amounts is then outstanding on the court-ordered support obligation. Each month that you fall further behind on support payments increases the amount of the debt that is secured by the judgment lien.
Second, under most state laws falling behind on support payments is itself grounds for your ex-spouse or support enforcement agency to record a support lien on any real estate that you own. This support lien often gives the ex-spouse or agency greater ammunition against you than a simple judgment lien would.
The Sacredness of Support Obligations in Bankruptcy
What bankruptcy can do for you if you are behind on support payments is limited, but what it can do could still be extremely helpful to you.
Support debts are treated with great deference by the bankruptcy laws. You can’t write off any child or spousal support through bankruptcy, either the regular monthly payments or any accrued unpaid support. That’s true of both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts” types of bankruptcy. Only the divorce court can change the amount of your ongoing support payment. These courts essentially only do so as to future payments, so they don’t relieve you of any accumulation of prior support payments.
In addition neither Chapter 7 nor 13 can stop collection of ongoing monthly support. Again, only the divorce court has power over that. Bankruptcy Court is a federal court, and under our federalist system of government domestic relations matters are left to the state courts. In matters such as child and spousal support the federal bankruptcy courts simply don’t intervene.
Protection from Support Lien Enforcement of the Accrued Arrearage
While Chapter 7 doesn’t provide any protection from support collection efforts on accrued support arrearage, Chapter 13 does.
If you owe a chunk of support arrearage, filing a Chapter 7 case is not going to stop or delay any enforcement of a support lien against your home based on that support arrearage debt. But filing a Chapter 13 case instead is completely different. If there’s a support lien on your home that is under threat of being foreclosed, Chapter 13 stops that at once.
More importantly, if you play by the rules you will be protected from a support lien foreclosure AND all other support enforcement actions against you and your home during the full three to five years that the Chapter 13 case is active. Best of all, you have this three-to-five year period to catch up on the unpaid support payments so that by the end of the case you are current on your support. If the support lien on your home was imposed for being late on support payments, when you’re current that lien will come off your home’s title.
Playing by the Rules
Recall that even Chapter 13 doesn’t stop collection of ongoing monthly support payments. So you have to continue paying those if your divorce decree obligates you to.
Indeed it’s absolutely crucial that you pay those regular monthly payments (unless and until you reduce or eliminate that obligation through the divorce court). It’s crucial because if you don’t keep making those ongoing payments perfectly, your ex-spouse or support enforcement agency will have grounds to resume collection action on the support arrearage. That would include foreclosing on the lien against home and any of the other aggressive collection actions the law allows against you and your assets.
Beyond that, the rules also require your Chapter 13 court-approved payment plan to earmark enough money to pay off the entire support arrearage within the life of the payment plan. You must also actually pay the required payments into the payment plan throughout the life of the plan.
If you don’t do fulfill any of these obligations your ex-spouse or support enforcement agency will very likely ask the bankruptcy court for permission to collect on the support arrearage by foreclosing on the support lien or through other collection actions against you.
On the other hand, if you do play by these rules you get the advantages laid out above—a substantial amount of time to pay off the support arrearage, protection for your home (and other assets) from enforcement of the support lien, and under the right circumstances a release of that lien once you catch up on the support arrearage.