Chapter 7 does not stop the collection of unpaid child or spousal support, nor provide any procedure to pay the support. It may still help enough.
Chapter 7 “straight bankruptcy” is the most common type of consumer bankruptcy case. It is more likely to be a sensible solution if:
1) The support isn’t being collected aggressively, and
2) You don’t owe much.
1) Filing Chapter 7 does not stop the collection of unpaid child or spousal support. Chapter 13 can; and
2) Chapter 7 does not give you a procedure for catching up on the support. Chapter 13 “adjustment of debts,” does so.
So why would you file a Chapter 7 bankruptcy if you were behind on support?
Filing Chapter 7 When Owing Support
Chapter 7 is usually the most straightforward type of bankruptcy. A case lasts only about four months from when your bankruptcy lawyer files it to when the case is closed. A Chapter 13 case involves a formal payment plan that almost always takes 3 to 5 years to finish.
As mentioned above, Chapter 13 can stop the immediate collection of unpaid support and give you time to catch up.
Chapter 7 is much faster and makes sense if any of the following applies to you:
1) If you stopped paying the debts that Chapter 7 would discharge, could you quickly catch up on support?;
2) Would your ex-spouse be willing to accept monthly catch-up payments at an amount you could afford?;
3) If a support enforcement agency is collecting the debt, would it accept such voluntary payments?; and
4) Could you reliably make such payments, while presumably keeping current on the ongoing monthly support?
If you have a feasible way along these lines to catch up on your support obligation during and after your Chapter 7 case, then it may be your best option.
Other Advantages and Disadvantages of Chapter 13
But you and your bankruptcy lawyer will discuss two other considerations involving your other debts. Chapter 7 and Chapter 13 deal with debts quite differently.
The first consideration is about debts secured by your assets or other debts that you must pay despite filing a bankruptcy. Secured debts include home mortgages, vehicle loans, and any others with a lien on anything you own. Debts you must pay—besides support—include recent income tax obligations. Chapter 13 often handles these kinds of debts much better than Chapter 7. Without getting into the details here, Chapter 13 protects you while you pay these debts as your budget allows. If you have such debts, the way Chapter 13 helps may be reason enough to choose that option. Or this, along with the benefits it gives you with unpaid support, may swing you in that direction.
The second consideration is about the rest of your debts—those that are neither secured nor ones you must pay. These are your “general unsecured” debts. Usually, you can discharge (legally write off) all or most of such debts in either Chapter 7 or 13. In most Chapter 7 cases, you pay nothing on your general unsecured debts. However, In a Chapter 13 case, you often pay a portion of these debts. Whether and how much you pay on your general unsecured debts depends on lots of factors. The most significant factors are your income and expenses and the total spent on your non-dischargeable debts (secured and otherwise) that you are paying in full. So you need to weigh the benefits of Chapter 13 regarding your unpaid support and other non-dischargeable debts against the likelihood that you would be paying something instead of nothing on your general unsecured debts.
What Happens to Your Unpaid Child/Spousal Support Debts in a No-Asset Chapter 7 Case?
A “no-asset” Chapter 7 case is one in which property exemptions cover everything you own. Exemptions usually allow you to keep specific dollar values of assets in various categories. Most Chapter 7 bankruptcies are “no assets” cases. If yours is, you’re able to keep everything (except for collateral you decide to surrender).
In a no-asset Chapter 7 case, your bankruptcy trustee does not liquidate any of your assets. (That’s why it’s called “no-asset.”) Your Kalispell bankruptcy attorney will tell you if yours is expected to be a no-asset case.
Since the trustee doesn’t collect any money to pay your creditors, your support debts also receive nothing. So, a support debt gets no money directly from a no-asset Chapter 7 case. You have to deal with the support debt yourself (perhaps with the help of your lawyer), and be prepared to do so right away.