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New Bankruptcy Code in Belleville, IL

Family Law & the New Bankruptcy Code

When the Illinois Bankruptcy Code was amended in 2005, it had far-reaching consequences pertaining to family law. To help you make an informed decision, we’ve answered some common questions about the latest provisions, issues, and strategies.

What is a domestic support obligation?

A domestic support obligation is essentially your court-assigned debts meant to support your former spouse after a divorce or separation. Several factors play into how much, if anything, you need to pay for domestic support, with each spouse’s income and the number of children being the biggest variables. If each of you earns a similar amount and you have no children, the debt is likely to be viewed as dischargeable.

Children change the equation quite a bit. If you are the noncustodial parent and you’re assigned mortgage or car payments, these would probably be considered a nondischargeable domestic support obligation-meaning you have to pay. If you then attempt to file Chapter 13 bankruptcy, your former spouse could argue that the debt you’re trying to discharge is actually a domestic support obligation. If they’re successful, your debt will have to be paid as a priority debt under Chapter 13.

Your best strategy

Give your spouse an opportunity to file bankruptcy jointly with you. If your spouse refuses, you can file the bankruptcy and then argue to the family court judge that the spouse had the chance to file and so the debts shouldn’t be assigned to you.

How do I deal with past-due support?

An amendment to Chapter 7 bankruptcy makes distributing domestic support obligations a first priority debt. Support obligations assigned to governmental units are also now priority debts. This designation means the support obligation must be paid in full during the lifespan of the Chapter 13 plan.

Your best strategy

If you have a large amount of arrears, you may not be able to propose a plan that can pay off that debt within the five-year time limit. If your support obligations were assigned to a governmental unit, however, they do not have to be paid in full if you commit all your disposable income to a five-year plan and are still unable to pay your arrears in full. Although the debt assigned to the state wouldn’t be discharged, you at least wouldn’t have to face collections for the five years the plan was in place.

What is the means test?

This is one of the most significant additions to the Code. If you have income above the state’s median, you must submit to the means test in which your current allowable expenses are deducted from your monthly income to determine if there will be a monthly amount available to unsecured creditors. If the amount is large enough, there is a presumption of abuse and you’ll generally be required to file Chapter 13.

Your best strategy

You may be able to use your large amount of arrears to your advantage. Support arrears are a priority debt, meaning the total amount owed would be divided by 60 months and included in the means test calculations. This could allow you to file Chapter 7 rather than Chapter 13 even if you have a high income. Alternatively, you might be able to minimize or eliminate payments to non-priority unsecured creditors if you’re filing under Chapter 13.

How do current support obligations play a part in bankruptcy?

The importance of support obligations is no much higher than it used to be. In terms of child support, a counsel can exert pressure on a debtor to pay support in many ways. If you apply for a Chapter 13 bankruptcy, you must up to date with your post-judgment support payments or else risk having your case dismissed. You don’t even be allowed to discharge from court without signing an affidavit at the conclusion of your case certifying all of your support obligations have been paid in full.

Your best strategy

Stay up to date on your support payments, no matter how hard it is, to avoid putting yourself at future risk.

Could I be challenged as a debtor filing under Chapter 7?

Since obligations imposed by a divorce decree can no longer be discharged, it’s highly unlikely that a Chapter 7 debtor will be challenged.

That’s a lot to digest, and there’s even more to know

Despite all the changes, the Bankruptcy Code can still be a useful tool for both parties in family law cases. It is often helpful file a joint case before a judgment of dissolution is entered to simplify the issues and allow both parties to make ends meet. It’s important for family law attorneys to explore alternatives when their clients are in financial distress. While the post-amendment Code might be more difficult to use, bankruptcy is still a viable option for those who may need it.

Don’t worry-the attorneys at Dixon & Johnston Law Office can help.

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