If you are behind on support payments, regular Chapter 7 bankruptcy can only help so much. Chapter 13 is infinitely stronger.
If you are behind on either child or spousal support payments, your ex-spouse and the support enforcement agencies have some tremendously powerful ways to make you pay. They can do more than just garnishing your checking account or paycheck. They can take your income tax refunds. They can suspend your driver’s license, including a commercial license that you may need for work. In fact, in Oregon, virtually any occupational and professional license you could have can be suspended once certain conditions are met. Falling behind on support makes you extremely vulnerable.
Chapter 7 “straight bankruptcy” does not help you against these collection methods. That’s because the “automatic stay” that protects you against almost all creditors does not apply to ex-spouses or the Oregon Department of Justice or your county’s support enforcement departments collecting any court-ordered support.
But a Chapter 13 “adjustment of debts” case CAN stop their aggressive forms of collection. It can not only stop the collection, if done correctly Chapter 13 can permanently solve your back support problem, along with dealing with all the rest of your debts. We show you how through an example.
Our Example—The Problem
Tom is a 39-year old physical therapist. He got divorced 4 years ago, and has parenting time with his 6-year old daughter. Because he had higher income than his ex-wife when they got divorced, he pays her $700 per month in child support, which he pays to her by check.
But the divorce was financially very hard on him because he was obligated to pay most of the marital debts, plus pay the support. Plus two years ago the medical office where he’d worked for many years decided to outsource their physical therapy services, so he was out of work for a couple months, and then had to take another job that paid less.
After the divorce Tom had paid his child support very regularly for the first couple years. But while he was unemployed he just didn’t have the money, so he fell behind three months. Since then he’s struggled to make the payments, usually paying a hundred or two less, whatever he could come up with. Six months ago, when he had fallen behind by a total of $4,000, his ex-wife got fed up and contacted the county District Attorney’s Support Enforcement Division. So he was required to pay his monthly payment directly to the Oregon Department of Justice’s Child Support Program, which is also demanding that he start making monthly payments towards his back support.
This has put him into a financial tailspin. The past few months Tom has been unable to keep up on the rest of his debts, most of which he is under the divorce court’s order to pay. He had to skip a car payment and is afraid his car it will be repossessed. Because he owes more than $2,500 in back support, he knows that the Support Enforcement people have him over a barrel. He’s read on its own website that:
[T]he Child Support Program has many tools to enforce child support . . . . These include:
Suspending driver’s, occupational . . . licenses. If a parent owes at least $2,500 in back support and fails to make and keep a payment agreement, their driver’s [or] occupational . . . license may be suspended if it is not possible to collect using other methods.
Tom can’t pay anything towards his back support and keep up his car and other obligations. But if his driver’s and/or physical therapist licenses are suspended, he can’t keep his job and his already insufficient income will plummet. He’s stuck in a very bad place.
The Solution
So in his desperation Tom went to see a competent bankruptcy attorney. After discussing his whole situation, and after reviewing all the possible options, his attorney recommended that he file a Chapter 13 case.
If Tom had filed a Chapter 7 bankruptcy case, some of his other debts would probably have been permanently discharged (legally written off), but not his divorce court-ordered obligation to his ex-wife to pay the marital debts. And it would have done nothing to protect him from Support Enforcement suspending his licenses for not paying on the back support. Chapter 7 would virtually not help him.
However, when the Chapter 13 case instead was filed for him, that immediately stopped Support Enforcement from suspending his driver’s and physical therapist licenses. It also stopped any future garnishment for the back support.
Tom had to fulfill two obligations regarding the child support: continue making his regular monthly support payments AND arrange to catch up on the $4,000 in support arrearage during the following three to five years.
He had no problem doing these since his other debt obligations were hugely reduced. Under Chapter 13’s “super-discharge” he did not have to pay his marital debts in spite of the divorce judge’s order to do so, beyond what he could afford to do after paying support and his car loan. His car could not be repossessed, and he even got to pay less on that because of his right to a “cramdown”—more on that a few blog posts from now.
By the end of his Chapter 13 case Tom will have paid 100% of his back child support, will continue being current on his ongoing monthly support, will have paid off his car for less than he had owed, and to whatever extent his other debts will not have been paid the remaining obligations will be discharged. Other than his ongoing support payments, he will be debt-free.