THE IMPACT OF BANKRUPTCY LAWS ON FAMILY PRACTITIONERS
Bankruptcy is just not for bankruptcy lawyers anymore. The bankruptcy laws affect Family Law practitioners too.
1. New Definition of "domestic support obligation" under 11 USC � 101 (14A):
"(14A) The term "domestic support obligation" means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable non-bankruptcy law notwithstanding any other provision of this title, that is -
(A) owed to or recoverable by:
(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian,
or responsible relative; or
(ii) a governmental unit
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after that date of the order for relief in a case under this title, by reason of application provisions of-
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable non bankruptcy law by a
governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt."
This includes both pre-petition and post-petition obligations and accruing interest.
2. The filing of bankruptcy does not "stay" the following:
- 11 USC � 362(b)(2)(A) -- the commencement or continuation of a civil action to do the following:
- establish paternity
- create or modify a domestic support obligation
- child custody or visitation (shared parenting orders?)
- divorce actions but not division of assets
- domestic violence proceedings
- 11 USC � 362(b)(2)(B) -- collection of a "domestic support obligation" from property that is not property of the estate;
- 11 USC � 362(b )(2)(C) -- income withholding - for domestic support obligation
- 11 USC � 362(b )(2)(D) -- suspension of a license, professional or occupational or recreational license under state law or as specified in � 466 (a) (6) of the Social Security Act for obligations for a domestic support obligation
3. 11 USC �362(b)(2)(E) allows a parent to report arrearages on a domestic support obligation to a creditor/consumer reporting agency as specified in �466(a)(7) of the Social Security Act.
4. 11 USC �362(b)(2)(F) allows interception of a tax refund for a domestic support obligation.
5. 11 USC �362(b)(2)(G) allows the enforcement of a medical support obligation.
6. Support Obligation Priority:
All domestic support obligations are a first priority for payment under 11 USC � 507(a)(1):
However obligations owed to a spouse, former spouse, child of the debtor or child's parent, legal guardian or responsible relative, or recoverable by the government unit on their behalf is first among priority debt. Second are domestic support obligations assigned to a government unit or owed directly to a governmentunit.
7. Chapter 13 - Unique Provisions
- 11 USC � 1307(c) was amended to make failure to pay post-petition domestic support obligation a grounds for dismissal of the bankruptcy petition.
- 11 USC � 1322(a)(4) provides that, although support owed to the government is now a priority debt, it need not be paid in full in a Chapter 13 Plan if debtor proposes a five (5) year plan committing all disposable income and cannot pay it in full. The obligation however is not discharged.
- In a Chapter 13 plan this policy prevents large government support debts from making mortgage cure and other Chapter 13 remedies unavailable which may otherwise help families.
- 11 USC � 1325(a)(7) makes payment of post-petition support one of the standards for Chapter 13 plan confirmation.
- 11 USC � 1328(a) will require the debtor, in order to obtain the Chapter 13 discharge, to certify that all post-petition support and all support required to be paid by plan has been paid.
- This certification is not required for a hardship discharge.
- Debtor who cannot make certification or obtain hardship discharge may have to convert to Chapter
- The net result gives domestic support creditors power in Chapter 13 cases; gives them the ability to scuttle the plan if they are not paid, and creates a hammer throughout the cases.
- See In Re Vinnie, 345 B.R. 386 (Bkrtcy. M.D. Ala, 2006)(Divorce lawyer attorney fees and priorities in Chapter 13); In Re Sanders, 341 B.R. 47 (Bkrtcy, N.D. Ala, 2006)(priority position of domestic support obligations and plan treatment); In Re Reid, Slip copy 2006 WL2077572 (Bkrtcy. M.D. N.C. 2006)
8. Dischargeability Issues
- Section 523(a)(5) now makes all domestic support obligations nondischargeable in all chapters (child support and alimony).
- All property settlement debts are made non-dischargeable in Chapter 7.
- Section 523 (c) is amended to no longer require a proceeding to be brought in the bankruptcy court. See Wood v.Wood, 438 S.E.2d 788, 800 (W.Va. 1993), where the West Virginia Supreme Court recognized that questions of whether or not payments pursuant to a divorce decree in the nature of alimony or child support or maintenance and are, therefore, nondischargeable in bankruptcy or whether or not they are property settlement issues which may be dischargeable in bankruptcy is a federal question which should be determined by the Bankruptcy Court.
9. What debts remain dischargeable in Chapter 13?
There is still 11 USC � 523(a)(15), which reads as follows:
"(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit."
It seems reasonable to conclude that any equitable distribution obligation which does not sound, act, feel, or look like "domestic support" would be dischargeable in a Chapter 13 with a percentage payout.
10. 11 USC � 522(f) now prohibits the avoidance of a judicial lien created for a domestic support obligation.
11. Trustee Duties
- Trustees in every chapter must give notice to holders of domestic support obligations of services provided by state child support enforcement agencies and rights to collect claim in bankruptcy,
- Trustee must also send notice of the claim to state child support enforcement agencies, many of which will also receive the notice given to holders of claims, which presumably could be combined with this notice,
- Another notice must be sent to the holder of the claim and state child support enforcement agency when a discharge is granted,
- This notice must contain last known address of debtor and debtor's employer
- It must also contain the name of each creditor holding a claim not discharged under �� 523(a)(2), (4), or(14A) or a claim that was reaffirmed
What happens if the trustee does not have this information at time of discharge?
- Support creditors may request debtor's address information from creditor
- There is no requirement that creditor answer the request.
12. Remember, it is easier to divide assets than divide net assets. Therefore, a bankruptcy filing prior to the entry of a divorce order may be worth pursuing.
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