In parts one and two of “Domestic Support Obligations in Bankruptcy,” I explained what a domestic support obligation was and that it’s something you can’t discharge in bankruptcy, regardless of whether you file a Chapter 7 or Chapter 13 bankruptcy.
In this post, I’ll address the how domestic support obligations will affect your bankruptcy case.
Domestic Support Obligations Must Be Listed
If you have a domestic support obligation (“DSO”), you must list that debt in your bankruptcy schedules. You must do this even if you are current on that obligation. You should list the recipient as well as any agency involved in the collection of support. In South Carolina, for example, the Department of Social Services has a child support division that collects and disburses child support. Any arrearages should also be listed.
Exempt Property Can Be Sold to Pay DSO Arrearages
Exemptions are property you may protect from creditors and the bankruptcy trustee. For example, in South Carolina you can have up to $51,450 in equity in your home–doubled for married debtors where both are on title. That means the trustee cannot sell your home if you have less than that amout of equity, and if you have more equity than that, the trustee could sell your home, but he’d have to pay you the amount of your exemption in the property. However, for DSO arrearages the rules change. The trustee has the right to sell non-exempt property to satisfy this type of debt. This underscores the need to stay current on support payments.
DSO defaults happen from time to time for legitimate reasons like job loss or disability, for example. The DSO obligation is typically modified in those instances–eventually. But filing bankruptcy with large arrearages can cause problems, especially in Chapter 7 because there is no repayment plan in which you can cure those arrearages. The only source for curing arrearages in Chapter 7 may be your house, car, or other property.
Domestic Support Arrearages Must be Cured in Chapter 13
As noted above, you must list DSO obligations in your case. To obtain plan confirmation in a Chapter 13, you must propose to cure any DOS arrearages in the plan. (Chapter 13 cases typically run from three to five years.) DSO arrearages are one of several “priority” debts, and those debts must be paid in full in your Chapter 13. You must also remain current on your ongoing DSO obligation. In fact, prior to the court issuing your Chapter 13 discharge, you must certify that you are current on your support obligations.
The Trustee Will Contact the DSO Recipient
The Bankruptcy Code requires the trustee to contact the DSO recipient about your bankruptcy. So even if no arrearages are listed in your bankruptcy, the trustee will verify this by contacting the DSO recipient. So make sure any arrearages are listed.