The Bankruptcy Court in the Eastern District of Tennessee recently ruled that back child support owed to by a non-custodial parent is not property of the bankruptcy estate, and therefore the debtor does not have to pay the back child support to her creditors in her bankruptcy.
The issue before the court was whether the $60,000 owed by her ex-husband for back child support was property of the estate, and if it was property of the bankruptcy estate, whether the back child support could be exempted or protected by the debtor.
The Bankruptcy Estate
Property of the bankruptcy estate is determined by the Bankruptcy Code and is intended to be broad as any property that is not protected by exemptions can be used to pay creditors. Property of the estate is defined as all legal or equitable interest of the debtor in property on the day the bankruptcy is filed; however, there are several exceptions to that definition. The relevant one in this instance is “property of the bankruptcy estate does not include any power that the debtor may exercise solely for the benefit of an entity other than a debtor.”
How Does Child Support Fit In?
The Bankruptcy Court analyzed Tennessee child support law and several different bankruptcy court opinions (in Alabama and other states) to determine that the Tennessee child support laws clearly exempts this back child support from the assets of the bankruptcy estate. This is because the custodial parent is holding the child support payments in trust for the minor child.
Because the child support payments are intended for the benefit of the child and to support the minor child, the child support funds are not property of the custodial parent/debtor. Therefore, the funds cannot be part of the custodial parent’s bankruptcy estate and used to pay creditors in the bankruptcy. Because the Bankruptcy Court found the back child support was not property of the bankruptcy estate, the Court did not have to determine whether the exemption claimed was accurate.
Several Tennessee state courts have also ruled that a creditor outside of bankruptcy cannot offset or take child support in order to pay the custodial parent’s debts for the same reason. Child support, while paid to the custodial parent, is intended to be used to support the minor child.
Over the decade of practicing bankruptcy law I have talked to many custodial parents who are experiencing financial difficulties because a non-custodial parent is not paying child support or not paying it regularly. If this is your situation, please come talk to an attorney at Bond & Botes as we can protect any money you are able to recover from the back child support owed to you and your child. Contact us today to schedule your free consultation.