Question: I am currently working with one child at home. I receive the child tax credit for my son, however I owe Child tax credit some money from years past and they are taking half of each months payment- the debt went from 12,000 to 7,000. I am currently considering bankruptcy and I would like to know if this debt can be claimed in the bankruptcy…any help would be wonderful.
Answer: Technically, yes, your debts are discharged in a bankruptcy, including debts owed to the government for overpayment of child tax credit.
However, in practice, the federal government considers child tax credits to be a discretionary payment, meaning they can pay it, or not pay it, as they see fit. Therefore, if you go bankrupt, the government could decide to simply keep doing what they are doing, ie. paying you half of the amount you would otherwise be entitled too.
There have been cases where the government takes the position that if you go bankrupt, they will not resume regular child tax credit payments until the start of the next child tax credit year, which starts on July 1 when they re-adjust your monthly amount based on your previous year’s income.
In other words, it is impossible to say for sure what the government will do. It is likely that some but not all of your child tax credit debt will be discharged, but until you actually go bankrupt there is no way to know for sure. Unfortunately the government in the past has not applied their rules consistently.