Divorce can cause major money problems
Image source: Flickr User Jennifer Pahlka
One of the most common drivers of bankruptcy is major life events. We hear from our clients a range of causes that range from loss of a job, major accident or illness and break up of a marriage. This last comes with high costs. Not only are you doubling expenses by splitting into two households, but if children are involved, one parent often must now pay child support and possibly even alimony. This can stretch budgets to the limits and if there is any change in earnings, it can be easy to get behind on payments.
Once you're delinquent on support payments, the fallout can be devastating. You can see your wages garnished, be subject to a warrant for arrest for failure to make payments or liens on your property. You can lose driving privileges and be ineligible to renew professional licenses you need to earn your living. If you're in the military or a job requiring a security clearance, you can lose your job and/or your clearance.
In short, falling behind on either child support or alimony can have disastrous consequences on your life. If your payments truly are more than you can afford, you'll need to go back to family court for a modification – no form of bankruptcy can reduce them for you. This may reduce your current payments to a more affordable level, but likely won't do anything for accrued back balances. But Chapter 13 will allow you breathing room to get them under control and catch up.
Although alimony and child support are unsecured debts, they cannot be reduced or discharged in bankruptcy like other unsecured debts like medical bills and credit cards. They are considered “priority debts” and they must be paid off in full over the tenure of your Chapter 13. But here's what happens to support payments in bankruptcy that can help you if you're behind on these important obligations:
- You will have to make your regular monthly child support or alimony payments throughout the repayment plan period (three to five years).
- These are paid prior to any other priority debts including income taxes.
- If there is an existing court order that allows garnishment or income withholding, this will likely continue unless the family court modifies it.
- Any back balances can be paid over the repayment plan.
If, for instance, you are behind $5,000 on your child support and have a five year Chapter 13 debt repayment plan, you could pay as little as $83 per month toward clearing the back balance. How much you have to pay each month on your back balances depends on your income, costs of living and other debt obligations. Back balances on child support and alimony must be cleared by the end of the repayment plan, but often this is enough time to allow you to get caught up and avoid some of the worse consequences of being behind on these all-important expenses.
To find out more about how Chapter 13 can help you get your child support and alimony arrears caught up, contact the law offices of John T Orcutt for a free consultation on North Carolina bankruptcy.