I have seen many instances in which New Jersey residents file a chapter 13 bankruptcy repayment plan to get caught up on alimony, child support, or some other domestic support obligation (DSO). This can be a good thing (for the payor) and a bad thing (for the payee), but fortunately the changes to the bankruptcy code in 2005 provided protection for both sides in this situation.
DSOs Get Paid First
The first change is that DSOs get paid first. Congress moved these debts to the top of the payment list, and they are disbursed first before mortgage arrears (secured debt) or credit cards (unsecured debt). As such, it may be a three to five year plan, but since DSOs are paid first, the money is received much sooner than that.
This is good for the payee, but not so good for the debtor in some instances. Attorneys fees for a chapter 13 are not cheap, and some attorneys offer to put a portion of them in the plan. However, since DSOs are paid before the fees, most lawyers are unwilling to wait that long to get paid.
This can create a barrier to people seeking bankruptcy assistance that can ultimately help the payee get paid and the payor afford to do it.
DSO Payments Must Be Kept Current During Plan
The second change is that DSOs must be kept current during the plan. In the past, people would file chapter 13 to pay a DSO arrearage, but then just get behind on current payments during the plan. Under the changes to the law, however, the debtor can be denied a discharge of all of his debts at the end of the plan if he or she is behind in payments without a darned good reason.
So bankruptcy can definitely help someone get current on a DSO, but it is not a tool to be used as a stall tactic or shield from an (ex)spouse. Diligent, responsible debtors can get things turned around; those that are just trying to game the system will find themselves back in the same bind they were before.
I Can Help
If you live in southern New Jersey and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.
If you have more questions about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.
If you are looking for more information on how bankruptcy might help you with your divorce, then you should download my free book, Top Questions Divorcing Couples Ask About NJ Bankruptcy.