Chapter 7 Vs. Chapter 13
Under Chapter 7 bankruptcy, a debtor’s nonexempt assets are sold to pay his debts, but the debtor often gets to keep certain personal property and a certain amount of equity in his home. The debtor must make less than his state’s median income or must pass a means test to qualify to file. Chapter 13 has no income qualifications and does not involve sales of assets. Rather, a Chapter 13 debtor pays his disposable income toward his debts on a payment plan of up to five years. At the end of each type of bankruptcy, the debtor is eligible for discharge of most remaining debts if he completes all requirements including attending financial counseling.
Only certain taxes are dischargeable in bankruptcy. Generally, taxes are not dischargeable if they became due within three years before you filed for bankruptcy or if the tax was assessed by the Internal Revenue Service within 240 days before you filed. If you did not file a tax return, the tax debt is not dischargeable even if the IRS filed a return on your behalf. If you attempted to commit fraud or willfully attempted to evade taxes, your taxes are not dischargeable. If your tax debt includes both dischargeable and non-dischargeable taxes, it's possible to eliminate the dischargeable portion, reducing your total taxes owed.
Child support and other similar domestic support are never dischargeable under either type of bankruptcy; fortunately, when other debts are discharged, you may find you have more money available to pay your back child support. Some enforcement measures designed to force you to pay child support can be relieved by filing for bankruptcy, because your filing creates an automatic stay – or postponement – of collection proceedings. For example, state child support enforcement officers cannot file a civil contempt of court action for past due child support once the automatic stay is in place.
Child Support Modification
A bankruptcy court has no jurisdiction over family law cases, so it cannot modify or reduce child support payments. However, you can file an application with your state’s family court, usually the court that issued your child support order, to receive a modification. In most states, you must prove there has been a significant change of circumstances, such as a dramatic decrease in your income, since your last order was issued.