How Is Income From Child Support Treated in Chapter 7 Bankruptcy?
If you file for Chapter 7 bankruptcy and receive child support, you may be concerned about losing ongoing child support payments, payments you received before you filed for Chapter 7 bankruptcy, or child support arrears.
All child support that is necessary for the support of your dependent child that you receive after you file for Chapter 7 is exempt and will be yours to keep. In most states, you will be able to keep unspent accumulated child support. Whether you will be able to receive any back child support or arrears still owed to you will depend on whether your state exempts all child support payments or only future child support payments.
Child Support Received After You File for Bankruptcy
In Chapter 7 bankruptcy, you get to keep income received after the filing, provided that it was not owed to you before you filed. There are a few exceptions to this rule, but child support is not one of them. This means that child support received after you file bankruptcy is yours to keep.
Child Support Received Before You File for Bankruptcy
If you have cash or money in a bank account that came from child support payments before you filed for bankruptcy, this asset becomes part of the bankruptcy estate as does all your property. However, in most states, child support money is "exempt"-- which means the bankruptcy trustee cannot take it to pay off creditors. To get the exemption and to keep your child support safe, in your bankruptcy petition you must list it as an asset and then list it as exempt property. It will be helpful if you are able to show that those funds came from child support (called "tracing" the funds). Some states place limits on the amount exemption; you will need to be aware of the terms of your state exemption before you file. Check your state bankruptcy exemptions.
Back Child Support Owed to You
What happens if you receive overdue child support that was owed to you before you filed for bankruptcy? Whether you get to keep this back child support depends on your state's exemptions. In some states, such as Utah, back support is specifically included as an exemption, which means you get to keep it. In other states, back child support payments are considered to be "payments necessary for the support of the child," and are exempt. Even if your state does not exempt back child support, the Chapter 7 bankruptcy trustee may "abandon" the funds, which means you get to keep the money. This might happen if the trustee deems it too expensive to collect the support and distribute to your creditors.