Child Support: Bankruptcy Issues

A child support obligation cannot usually be discharged in bankruptcy, but must be paid in full, with two important exceptions.

If a divorce decree specifies that an obligation to a spouse is child support, but the obligation is not actually in the nature of child support, then the obligation can be discharged in bankruptcy.

For example, if the divorce decree states that the husband is to pay a marital debt to XYZ Corporation, and further specifies that the husband's payment of the debt shall be treated as child support, the husband may arguable have the ability to discharge such debt in bankruptcy even though the divorce decree calls his payment of the debt child support.

Also, in certain instances an ex-spouse may be able to discharge a child support obligation if the obligation has been assigned to a third party.

For example, suppose John and Mary Doe divorce. John is ordered to pay Mary child support of $500.00 per month. John does not pay the support and Mary, who needs the money, assigns the support to her father, who gives Mary the $500.00 per month in return for the assignment. Mary's father now owns the right to collect the support from John. If John files bankruptcy then the child support obligation can be discharged to the extent it has been assigned to Mary's father.

The United States Bankruptcy Code (Title 11 of the United States Code) states in Section 523 that:

(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . .

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that

(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to § 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or

(B) such debt includes a liability designation as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support . . . .

Last modified:  Jan 18, 2005 11:44 AM

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