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Understanding the implications of child support and bankruptcy is important when filing for bankruptcy. Under Chapter 7 bankruptcy, the bankruptcy court can take your nonexempt property so that your creditors can be paid using the proceeds from their sale. In exchange, the bankruptcy court will also discharge most of your debt, thus giving you a chance to start over. Unfortunately, if you owe child support, you will not be able to discharge that debt by filing for Chapter 7 bankruptcy because child support debt is considered to be so important that it gets classified as a priority debt.
As a result, when you file for Chapter 7 bankruptcy, your secured debt will be satisfied using your unretained collateral, while first your priority debt and then your non-priority debt will be satisfied using the rest of your property. If your nonexempt property is not enough to repay your priority debt, you will still be responsible for repaying the remainder after your Chapter 7 bankruptcy.
In fact, it is interesting to note that child support debt is considered to be so important that it sometimes receives priority even over other priority debt. Given this fact, it should come as no surprise to learn that you are responsible for making your child support payments during your Chapter 7 bankruptcy as well.
Under Chapter 13 bankruptcy, you are permitted to keep your property. However, you are obligated to follow a repayment plan that will last either 3 or 5 years, which will see you repay a portion of your debts. Once the repayment plan runs its course, the bankruptcy court will discharge your remaining debt.
Chapter 13 bankruptcy could be used to discharge more kinds of debt than Chapter 7 bankruptcy. For example, credit card debt incurred to pay taxes can be discharged in Chapter 13 bankruptcy but not under Chapter 7 bankruptcy. However, child support debt is not one of these kinds of debts. Instead, it must be paid off during the repayment plan, which is something that it shares with other priority debt.
With that said, even though child support debt cannot be discharged using either Chapter 7 or Chapter 13 bankruptcy, that does not mean that they are useless when it comes to dealing with said issue. For example, the discharge of debt in Chapter 7 bankruptcy can free up income that makes it easier to deal with child support. Similarly, the repayment plan in Chapter 13 bankruptcy can make it easier for you to pay child support by lessening the rest of your debt burden.
Retaining an experienced attorney can help guide you through the bankruptcy process. We encourage you to request a free consultation to explore your options.