There are many pitfalls when your family law case gets more complicated by a bankruptcy filing. My first experience with this occurred several years ago when I represented a client who owed a substantial amount of child support. I advised the client, that based on my few months of experience, that the Judge would probably give some time to try and resolve the child support obligation on a first contempt motion. I also advised the client that since he had filed for relief, the bankruptcy stay should prevent collection activities against his property until lifted. To my surprise, the Judge ignored this argument, heard the evidence, and submitted an order for my client to be incarcerated for 30 days–starting right now.
Luckily, my client was able to rapidly get the child support money that had been so hard to find after being incarcerated for a few hours. I still think that the property issues involved should have triggered the stay prevented the incarceration, but since my client didn’t want to appeal, it is not worth further mention. Hopefully newer attorneys can profit from my experience in advising their child support delinquent clients.
Currently, the new Bankruptcy Code that took effect in October 2005 contains language under 11 U.S.C. § 362 that further strengthens the right for collection of child support, and other related family obligations, regardless of a bankruptcy filing. Even so, you still need competent advice before proceeding, as Congress still exempted collection from a debtor’s property that is subject to distribution by the bankruptcy trustee. (A call to the trustee assigned to the case would help you to make this determination.) The code is clear that withholding of income for payment of a domestic support obligation is permitted and does not violate the stay, so you should feel safe in establishing the typical child support wage garnishment despite a filing.
At this point, you may be wondering what constitutes a domestic support obligation. 11 U.S.C. § 101 (14A) defines it precisely. It has substantially changed the scope of what the bankruptcy law deals with when it comes to what will be considered related to domestic relations. It now includes not only debts owed to a spouse, former spouse, or child, or such child’s parent, legal guardian, or responsible relative, but also a Governmental unit. It also includes any debt that is in the nature of alimony, maintenance, or support, including any debt that is voluntarily assigned by the spouse, former spouse, or child of the debtor, or such child’s parent, legal guardian, or responsible relative, for the purpose of collecting the debt.
In addition, the exceptions to the stay are expanded in 11 U.S.C. §362(b). Not only does the stay not operate against the establishment of paternity or for the establishment of a modification of an order for domestic support obligations, it also does not operate against child custody or visitation actions, domestic violence actions, and divorce actions generally, except to the extent that such a proceeding seeks to determine the division of property that is property of the estate in bankruptcy. It does not protect the withholding of income, the suspension of a driver’s license, a professional or occupational license, or a recreational license such as a hunter’s license, the reporting of overdue support to consumer agency, the interception of a tax refund, or the enforcement of a medical obligation as under Medicaid.
Other important issues:
1. Domestic support obligations are now first in priority to be paid under 11 U.S.C. §507(a) 1, and a debtor likely cannot discharge a State obligation in bankruptcy court.
2. The trustee cannot avoid transfers to bonafide debt payments for domestic support obligations.
3. Under 11 U.S.C. §1328, you can now discharge 11 U.S.C. §523 (A) (15) marital debts only under a Chapter 13 plan, upon successful completion of the final repayment.
As a conclusion, the following real world examples may be helpful in applying the new rules.
Example A: A man comes to your office for help with regard to his family law matter. He and his girlfriend conceived a child out-of-wedlock, and the relationship did not work out. He is now faced with a $10,000 bill from the State of Idaho for reimbursement of medical and birth costs (a 11 U.S.C. §523 (A) (15) obligation.) In the past, this debtor could have attempted to have this debt discharged as a non-priority debt. While it remains for the case law to construe these new provisions, it appears that the new code prevents discharging this debt with an adversary proceeding. Under the new law, the Chapter 13 bankruptcy is the only option the debtor has, and the debtor will have to pay whatever the debtor can afford in the plan towards satisfaction of this obligation.
Example B: A client owes a large amount of child support, and he is going through some financial problems at his office. He comes to you for help with regard to a contempt motion brought by the State in an effort to collect the child support. There is no protection for the doctor from the automatic stay with regard to any action the State may take against his medical license. However, the client can sell his 4 wheelers and snowmobiles at market value to pay the child support and if the client falls into bankruptcy later the trustee will likely be unable to challenge that use of the debtor’s resources.
Example C: A client comes to you and says, “I obtained a decree in my divorce which divided our debts and gave me a child support judgment. My former spouse has filed a Chapter 7 bankruptcy. Can I get any of the amounts owed?” Your client should immediately file a Proof of Claim with the court for any amount ordered under the decree at first opportunity, because 11 U.S.C. §523 (A) (5) obligations–“in the nature of alimony, maintenance, or support” will now be given a first priority in line for any amounts recovered by the trustee. An important point for family law practitioners is to make sure the Judgment from State Court specifically identifies the debt so that the bankruptcy court can determine the amount of the debt that is entitled to the first-place priority. In addition, your client may proceed against the former spouse for the non 11 U.S.C. §523 (A) (5) obligations, despite the Chapter 7 filing, with regard to obtaining any relief allowed without any potential violation of the stay, as long as you are not attempting to attach assets or money that are part of the bankruptcy estate.[1][2]
