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Domestic Support (Child and Spousal Support) Obligations Arrears an Asset in Bankruptcy

Will the Bankruptcy Trustee go after Child and Spousal Support arrears to pay my creditors?

According to the U.S. Department of Health and Human Services’ Office of Child Support Enforcement (OCSE) 30 percent of child support payments are not made, and less than half are paid in full. In 2017 this equates to about $10 billion of unpaid child support. Therefore, it comes to no surprise that many clients who come into file bankruptcy are owed past due child and spousal support payments. The question is whether the past due support obligations owed to the client can be taken by the bankruptcy trustee to pay the client’s creditors in bankruptcy.

First, domestic support obligations are an asset, with value, and therefore, must be listed on the bankruptcy petition. Second, we must determine whether the money is protected. Under California Code of Civil Procedures Section 703.140(b)(10) a Debtor may exempt “alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor. ” This means that the client can protect the entire amount of the domestic support obligations if that amount is reasonably necessary to support the client and their dependents.

The phrase “reasonably necessary” is a term of art. It is determined by looking at the client’s financial situation. However, in many cases, the trustee and bankruptcy court are more concerned as to whether it makes sense to go after the money. If the parent that owes the child or spousal support has no funds to pay the obligation, then there is no reason to waste time or resources to go after it. Even if they were able to retrieve the funds from the owing parent, they would then face opposition from the client as to whether the money is reasonably necessary. Therefore, unless the amount owed is significant and unless there is an extremely high probability of retrieving the funds, then the trustee will probably abandon the domestic support arrears.