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Child support payments as income and how it affects Chapter 7 filing

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  • Child support payments as income and how it affects Chapter 7 filing

    I am looking to file bankruptcy and by my calculations, which I have spent endless hours to make sure they are accurate, I show a negative disposable income of $525 on Chapter 13 Form B22C. In contrast, I show a positive DI of $342 on Chapter 7 Form B22A. The difference between these figures is child support I receive because the Chapter 13 form allows you to deduct child support from your disposable income figure but the Chapter 7 form does not. So Form B22C shows me as ineligible to file for Chapter 13, but Form B22A shows a presumption of abuse if I file Chapter 7 because it does not allow for deduction of child support from DI like Form B22C does. How is a situation like this handled? Am I okay to file Chapter 7 and the court will recognize this or will they presume abuse and file to dismiss? Can/do I need to attach something to my B22A explaining this catch-22? Any help would be appreciated. I'm in the Middle District of Florida, Orlando division.

  • #2
    Additional info to clarify

    What I'm saying is there seems to be a glitch in the creation of the bankruptcy schedules. 1325(b)(2) is how disposable income is determined under Chapter 13 Form B22C, but 707(b)(2) is used for Chapter 7 Form B22A. 1325(b)(2) excludes child support from the calculation of DI. 707(b)(2) does not. Hence, the reason the bottom-line DI figures differ. So if taking your child support out in Line 54 of B22C (which you legally have to do to answer the form correctly) leaves you with a negative DI and keeping it in because there's no similar deduction on B22A leaves you with a positive DI over $166.67, thus triggering a presumption of abuse, what are you supposed to do? Perhaps the solution is since Schedule I includes child support, you just propose a monthly payment consistent with what you show as DI on Line 20C of Schedule J. And despite the negative DI on B22C, Chapter 7 isn't an option even though the Code itself says in 1325(b)(2) you don't include child support in the monthly disposable income figure.

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    • #3
      I would love any info or clarification on the above situation...

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      • #4
        I'd like clarification as well.

        Child support, legally, is supposed to be for benefit of the child, so perhaps that's why they back it out on a chapter 13, there might be some legal issues with forcing use of it to repay debts when it's legally to support the child. Ch. 7 doesn't require repayment, so the money won't be 'used' for anything but it's still income in the household. But it seems in some cases it might put you in a 'no option' situation.

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        • #5
          There is no glitch. Child support is include in both forms but only backed out of the 13. 11 USC 1325(b)(2) specifically excludes child support payments in determining disposable income.

          Under your situation there will be a presumption of abuse if you are above median income including the child support and do not qualify under means testing. You will have to persuade the UST (or the Judge if someone objects to the 7 on the basis of abuse) that you can rebut the presumption based upon your actual circumstances. If not, as stupid as it sounds, you will have to do the 13. But, according to Congress "it's a perfect law".)

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          • #6
            Well, since technically the child support could be used to pay some of little Johnny's bills, "other" money could be used to pay back creditors. That is money coming into the household. If that money is available to help buy little Johnny shoes and milk, that means your regular income is not being used to buy little Johnny his shoes and milk, right?

            So what I want to know is...if you don't count the child support, do you not count the bills that are paid with that child support?

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            • #7
              True geye, but my daughters father pays extra because he's doing well and I am struggling. So, should things change for him, or he decides he's done all he can do, then he only pays what is court ordered, I'd be screwed (if forced into a 13) if my income is based on what he's paying now. Its unfortunate, while your struggling to "do the right thing" with your bills, you get financial help from family and friends, making ends meet for awhile, then its considered income when the well finally runs dry and you end up trying to file. He may cut back his child support should the court want it due to my financial mistakes. Wow, I just opened up a whole other can of worms for my mind to think about.......great

              BTW - I am under the means, so I "qualify" for 7 even with his support. Just a little too close for comfort.

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              • #8
                Hi all,

                The new part of the law that catches cases caught in the cracks between Ch 7 and Ch 13 is the "totality of circumstances" clause.
                Here is where a good lawyer earns his pay.

                Good luck with all this,

                Tom in Colo

                ps: what do you look like on Sched I & J?
                Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

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                • #9
                  I wasn't saying that it shouldn't be discluded in the 13..more of a wondering kind of thing.
                  My grandpa gave me money this summer (just trying to be "nice" and help us out) and it had to be included as income and then noted that it was a one-time gift and would not recur. Sheesh. At least the trustee will know we're not hiding anything.

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                  • #10
                    I know geye, it's crazy. The different ways we manuever our money, or "gifts" we get from our family to get the money to pay your bills, only to delay the inevitable, comes back to haunt us in the long run. Theres only so much they can give. "Until I get back on my feet" isn't happening! I find myself wishing I would've just let this happen a year or two ago.

                    And Tom in Colo!!! - it comes out about even, depending on the day I do it! Sometimes expense is lower then income, so some DMI on my part, but thats where my lawyer told me to stop obsessing with it and let him handle it. He figured it out just fine and I was happy with it, but I can't stop tweaking things on my own. My recent past and future income will be less atleast 400-800 a month.

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                    • #11
                      but thats where my lawyer told me to stop obsessing with it and let him handle it. He figured it out just fine and I was happy with it, but I can't stop tweaking things on my own. My recent past and future income will be less atleast 400-800 a month.

                      You are in great shape, should be smooth sailing!

                      Tom in Colo
                      Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

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                      • #12

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                        • #13
                          Hi Panacea,

                          I looked up the MD law on justia.com and did not see a #6 or specific mention of child support under 11-504
                          Not sure how reliable justia.com is, but just wanted to give you a heads up in case....

                          No need for apologies on the questions, in fact this is a great question I have never seen answered:

                          If some form of income is exempt per BK exemptions, does it still get reported on the means test and Sched I ??

                          Maybe some of the gurus can weigh in here....?

                          Tom in Colo
                          Ch7 filed 5/12/2010.....341 meeting 6/30/2010....report of no distribution 8/15/2010.....discharged 10/01/2010.....closed 11/09/2010

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                          • #14
                            I just had my 341 on my Chapter 7 and my child support was exempted; I'm in Illinois. My lawyer wrote down that 100% of my anticipated child support that I'm supposed to receive is exempt and it went through without a problem.

                            I'm supposed to get child support but since he's a deadbeat I don't ever know when or if I'm going to get it. At the moment he's $10K in the hole and the State's Attorney is after him.
                            Filed Chapter 7: 8/11/2010 341: 9/13/2010 Done!!
                            9/14/2010 Trustee Report of No Distribution
                            Discharged 11/15/2010 Closed 11/18/2010

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                            • #15
                              Thanks again....I found this under MD State law exemptions...

                              Wages
                              Comm. 15-601.1 - Earned but unpaid wages are exempt as follows: in Caroline, Kent, Queen Anne's, and Worcester counties, the greater of 75% of actual wages or 30 times the federal minimum wage; in all other counties, the greater of 75% or $145 per week.

                              Miscellaneous
                              11-504 - Child support and alimony to the same extent that wages are exempt.

                              Can someone explain the above to me like I'm two because I'm just not getting it. Thanks!

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