Child support comes up in three ways in bankruptcy cases. First, child support is considered income on the means test, and may affect eligibility for relief in Chapter 7 bankruptcy or the debtor’s plan payment in Chapter 13 cases. Chapter 7 bankruptcy is limited to debtors who are truly unable to pay their creditors. To determine eligibility debtors complete a means test that determines their income by using an average for the last six months. Child support is considered income on the means test and can cause someone’s average income to be too high for Chapter 7 relief. Child support is income in Chapter 13 cases as well, but the income received can be deducted from the disposable income if it is reasonably necessary for the support of the child.
Second, child support is considered an asset on the bankruptcy schedules. Any money on hand that is from child support or any child support owed to the debtor is considered an asset. In Texas cases child support owed to the debtor is usually exempt property. However, in states in which this type of asset cannot be exempted, funds originating from child support may have to be handed over to the trustee so that the funds can be paid to creditors in Chapter 7 cases. In Chapter 13 cases the funds could increase the amount that must be paid to the unsecured creditors in the plan.
Third, commencement or enforcement of child support orders are excepted from the automatic stay, meaning that the ex does not have to get permission from the bankruptcy court to pursue child support from the debtor. Similarly, child support recipients are one of the few types of creditors that are allowed to garnish the debtor’s wages while they are in bankruptcy. However, this is limited to ongoing child support obligations and not arrearages, which must be paid through the plan.