Child Support Income and Bankruptcy

Child support income in bankruptcy can raise some tricky issues.  I recently posted a blog on social security and bankruptcy, and there are some related issues.  A recent case may help debtors in chapter 13 not to have to use their child support income.

Child support income is included in the chapter 7 means test (unlike social security).  The child support income, together perhaps with other income, might show that the debtor is not eligible for chapter 7 (there is a presumption of abuse).  However, in chapter 13, child support income is deducted from the total income.  This could actually show that the chapter 13 means test would show that no payments are required in the chapter 13 though the chapter 7 means test would require a chapter 13.

Bankruptcy attorneys must evaluate not only the means test income, but what I call the “real budget” as reflected on Schedule I and J of the bankruptcy.  In a chapter 13, the debtor must use all of his or her projected disposable income during the chapter 13 plan to pay unsecured creditors. Child support income is available to be used during the payment plan.

The topic here is whether child support income should count as income that must be paid as part of this real budget in a chapter 13.  The income is available, but the means test expressly adopts a congressional policy that child support income should not be required to be used to pay unsecured creditors.  This was the decision in In re Stephanie Brooks, Bank. C. D.  Ill.  July 21, 2014)(Case  NO 12-82224, Adv 14-cv-1031.).  The chapter 13 trustee wanted the debtor to be required to count the child support income.  The Court held for the debtor and did not require this income to be paid. This reasoning is consistent with the court decisions that social security income does not have to be used to pay creditors in a chapter 13 plan.

As a practical matter, the child support income is often needed to pay the mortgage in a Ft. Lauderdale chapter 13.  However, child support income should not be required to be used to increase the payments in a chapter 13 to unsecured creditors.

 



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