01 Feb Want a Shorter Chapter 13 Plan? Or Chapter 7? Stop Collecting Support
BAPCPA provides a perverse incentive to parents to not collect child support in order to get the most out of bankruptcy.
If your income over the last six months is below the median income in your state, you would typically qualify for Chapter 7 under the “means test.” But the law will also count your child support against you. And for many custodial parents, this has forced them into Chapter 13.
Once forced into Chapter 13, the custodial parent’s 6-month income snapshot, including child support, is counted to force them into the longest possible repayment plan. Five years. But the 2005 Congress, out of “concern” for single-parent families, graciously elected to allow the deduction of child support from the final payment calculation.
So Congress wanted to help single-parent households especially in light of the tenuous nature of support collection and the more random costs of growing children.
Not enough to allow them a fresh start quickly under Chapter 7. And not enough to allow them a fresh start over a medium period of time, three-years. But it did cut them some slack after forcing them into a long-term repayment program. They cared about the plight of single-parent families just enough to give them help in bankruptcy — after they cross a five-year long tightrope. Excellent!
Of course this begs the question: What if the child support is not collected? Well, then it would not be counted of course. So even if it was easily collected — the other parent is more than happy to pay — the law encourages some parents to not collect it for several months prior to filing bankruptcy.
Doing so may allow a shorter 3-year Chapter 13 obligation. If your budget with the support is still fairly tight, it may even allow you to qualify for Chapter 7.
Back child support is often protected as exempt from seizure by a Chapter 7 trustee to repay creditors so risk of ultimately losing this money is lower too. One should be aware that if the support is easily collected and can be relied upon to be paid later, then the schedules and budget filed in the case should accurately and truthfully reflect this fact.
Why a “pro-family” Congress would discourage us from getting as much support for our children as possible is a mystery (assuming one ignores campaign contributions). But this is a serious consideration when talking with your bankruptcy lawyer.
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