How are child support arrearage balances treated in Chapter 13?  Can the child support payer force a child support recipient to accept a 5 year payout of an arrearage balance?

The answer is “it depends.”  And often, the child support recipient (i.e. the custodial parent) gets to make the decision.

First, you should understand that Section 362(b)(2)(B) specifically excludes from the automatic stay any action to collect a “domestic support obligation.”  I read this to mean that if the child support payer files Chapter 13 bankruptcy, the automatic stay protection associated with a Chapter 13 filing should not stop a state court judge from hearing or ruling on a contempt action for collection of child support, nor should it stop a wage or bank account garnishment against the child support payer.

I would point out, however, that some state court judges will not assume anything about bankruptcy and will insist on an order from the Bankruptcy Judge before they will proceed with a child support collection case.

Thus, one option you have as a child support recipient is to continue with your child support collection efforts since the bankruptcy stay does not impact you.  However you may decide that the child support payer’s Chapter 13 offers certain advantages to you.   In some situations it may be in your interest to accept payments on the arrearage through the child support payer’s Chapter 13 plan.

Why would you want to accept arrearage payments through a Chapter 13 plan?  Often you will find that the child support payer’s plan offers you the best chance to get paid, while preserving your rights to collect using state court remedies if the plan fails.

Chapter 13 operates as a court supervised repayment plan.  The debtor submits a budget and a proposed plan.  Usually Chapter 13 payments are made through a payroll deduction, which means that there is a reliable source of funding.  Often Chapter 13 is used to stop a repossession or foreclosure, so the debtor often has a compelling reason to make his plan work.

Further, most Chapter 13 trustees will object to any plan when (1) the debtor is not current with on-going child support obligations and (2) the child support recipient objects to the proposed monthly plan distribution of the arrearage.

Therefore, the child support recipient has a great deal of leverage over the child support payer if the payer seeks to cure any arrearage in a Chapter 13.   If the recipient decides that Chapter 13 is a better option for collection than state court or child support collection agencies, then a reasonable Chapter 13 plan payout may be in all parties’ best interests.

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I have just been notified that my ex will be receiving SSDI, so in turn my son qualifies for benefits.  I was told his benefits would be backdated to June 2010 so I should receive a lump sum.  My question is since this is my son’s benefits, do I have to pay taxes on what he receives?  I was going put it in his (my sons bank account for college).  AND I was about to file BK (From the divorce) so could that be seized in the Ch 7 as assets?

Here are my thoughts, which represent general information about Social Security auxiliary benefits and the bankruptcy process:  I believe that the auxiliary benefits payable to your son represents his money, not yours.  You may be the payee for those funds, but the money is not yours.  I would talk to your bank about how to set up the bank account correctly – it should be clear that the account is owned by him with you as the trustee of the account.

As far as taxes go, you need to speak to your tax preparer.  Social Security payments can be taxable based on household income, so the answer to that question will depend on your personal financial situation.

The bankruptcy issue can get confusing because of how Social Security money is treated under the bankruptcy laws.  I don’t believe that your son’s lump sum money would be reachable by a Chapter 7 trustee since it is not your money, especially if the account holds only funds relating to the Social Security benefits.  The monthly benefits would not count for purposes of calculating your current monthly income under the median income test.  However, the monthly benefits would be considered in your Chapter 7 budget since your son is part of your household.  Confused?  Thank Congress for the byzantine nature of these laws.

I would talk to your bankruptcy lawyer about these issues, preferably before you set up the bank account.  Even though bankruptcy is a federal procedure, the exemption laws, which control what you can shelter, vary from State to State.   Your bankruptcy lawyer can confirm the accuracy of my general observations and offer legal advice specific to your situation.

Finally, thanks for the kind words about my blog.  Flattery is sincerely appreciated!

I frequently get questions from custodial parents (usually moms) who want to know if there is any way to find out if the non-custodial parent has applied for or is receiving Social Security disability.  The answer to this question is “not directly from Social Security” as privacy laws prevent Social Security employees from revealing this information.

Although SSA will not reveal any information about disability benefits to a third party, that information is a matter of public record if the Social Security recipient files for bankruptcy.  Bankruptcy petitions are publicly accessible documents and can be reviewed by anyone.

Further, under the 2005 changes to the bankruptcy laws, any Chapter 7 debtor who is currently paying child support must reveal that information to his Chapter 7 trustee.  The trustee then sends out a form letter to both the custodial parent and any child support enforcement agency.

Child support debt is not dischargeable in bankruptcy.  However, a bankruptcy petition may serve as a source of information about assets, other sources of income.   You can access bankruptcy petitions and associated paperwork in person by visiting the office of the Clerk of Bankruptcy Court where the debtor filed, or you can access this information electronically using a system called PACER.