Bankruptcy offers New York residents an escape from overwhelming debt and the opportunity to start again, but there are some debts that cannot generally be discharged by filing a Chapter 7 or Chapter 13 petition. These include unpaid taxes, fines and penalties owed to the government, and alimony and child support obligations. This means that noncustodial parents who have been ordered to pay child support by a court cannot escape this obligation or lower the amount they have to pay by filing a bankruptcy.
The automatic stay
The automatic stay that is issued when personal bankruptcy is filed prevents creditors from taking action to collect unpaid debts and puts a stop to debt-related wage garnishments and lawsuits, but it does not put a hold on paternity actions or legal proceedings to modify or establish child support. However, custodial parents who are having financial difficulties may be able to petition the court to lower the amount of child support they have to pay if their situations have changed significantly. When child support modifications are granted, they are not retroactive. This means custodial parents will still be expected to pay any arrears. When individuals file Chapter 13 bankruptcies, unpaid child support is included in their payment plans and must be paid in full.
Bankruptcy law also prevent debts for child-related expenses from being discharged. These debts could include unpaid school tuition fees and medical bills for a child’s treatment. Student loans are another form of debt that cannot usually be discharged in bankruptcy. However, exceptions are made when making student loan payments would create an undue hardship.
Seeking debt relief
Attorneys with experience in this area could explain the kinds of debt that can and cannot be discharged by bankruptcy and the differences between Chapter 7 and Chapter 13. When their clients are worried about losing their homes, automobiles or personal possessions if they pursue debt relief, attorneys may point out that the bankruptcy exemptions in New York could protect home equity, personal vehicles, retirement funds, tools needed to earn a living and personal property.