Cite as: Keith M. Lundin, Lundin On Chapter 13, § 106.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
Good-faith analysis of Chapter 13 plans that manage alimony and support claims has been clouded by the perception of some courts that domestic relations claims are unique. In part, this reflects the traditional reluctance of the federal courts to be involved in domestic relations matters. In part, it is fear that bankruptcy cases will become a court of appeals for state court alimony or support orders.
These perceptions have produced schizophrenia in the decisions addressing the good faith of Chapter 13 plans that provide for alimony or support claims. Over the years in some jurisdictions, it was fashionable to find a lack of good faith in any Chapter 13 plan that presumed to drag domestic relations claims into the bankruptcy forum. Other times and places, the revered status of alimony and support compelled every plan to pay all such claims precisely as ordered by state courts or risk bad faith.
Collision between alimony and support orders from state courts and Chapter 13 plans is inevitable. Congress could have excepted alimony and support from management in Chapter 13 cases, but it did not do so. The exception to the automatic stay for the collection of alimony and support is interrupted by the expanded definition of property of the estate in a Chapter 13 case.1 Debts for alimony, maintenance and support are claims that can be provided for in a Chapter 13 plan.2 Whatever domestic relations exception there may have been to the exercise of jurisdiction by federal courts, recent Supreme Court analysis suggests that little deference is due when Congress has vested jurisdiction in the federal courts over subject matter that has domestic relations content.3
Alimony, maintenance and support claims described in § 523(a)(5) are nondischargeable in a Chapter 13 case.4 In Chapter 13 cases filed after October 22, 1994, alimony, maintenance and support described in 11 U.S.C. § 507(a)(7) are priority claims that must be paid in full through the plan to satisfy 11 U.S.C. § 1322(b)(2).5 Even prior to the 1994 Act, it was often necessary for Chapter 13 debtors to favorably classify claims for alimony, maintenance or support because debtors who failed to do so found themselves in jail.6 In every Chapter 13 case in which the debtor is unable to pay all unsecured claim holders in full, it is now necessary for the plan to separately classify for full payment all debts for alimony, maintenance or support entitled to priority under § 507(a)(7).7
Chapter 13 debtors must be able to pay alimony and support arrears and ongoing payments if any plan is to have a chance of success. Alimony and support debts often have special preferences under state law with respect to garnishment of income or execution upon property. Good faith should not be an obstacle to confirmation of plans that pay alimony and support claims consistently with the statutory priorities. This has not always been evident in the reported decisions.
Fear of interference with state court domestic relations jurisdiction led one bankruptcy court to hold that good faith prohibits confirmation of a plan paying child support arrearages in full when the debtor is financially unable to pay other creditors: bankruptcy courts should not intrude in the area of state support orders except when substantial benefits will be realized for all creditors.8 Another court held that it is a violation of good faith to pay past-due child support through a Chapter 13 plan without the express written agreement of the recipient.9 In contrast, many courts have confirmed plans over good-faith objections when the plan separately classifies child support for full payment.10
It has been held that it is bad faith to file a Chapter 13 case with the sole (primary?) purpose of avoiding or delaying payment of a former spouse.11 “Egregious” misconduct during a prepetition divorce was held to be a major element of bad faith when the proposed plan failed to compensate the ex-spouse for the debtor’s prepetition misconduct.12 The debtor’s innocent omission of a child support claim was not bad faith and did not bar confirmation.13 A plan that manages debts that the debtor was ordered to assume by a state domestic relations court was measured for good faith using the usual criteria.14
It is to be hoped that the 1994 amendments will smooth out the erratic application of the good-faith test to plans that provide for alimony, maintenance and support. There can be no doubt that Congress intends to permit debtors to manage domestic relations debts through Chapter 13 plans. That most support claims are now entitled to priority and to full payment is a good reason to relax any special conditions that have been imposed in the name of good faith.
1 See §§ 68.2 [ Additional Protection for Postpetition Property and Income ] § 58.3 Additional Protection for Postpetition Property and Income and 69.1 [ Alimony and Support Exception ] § 58.5 Alimony and Support Exception.
2 See §§ 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994 and 303.1 [ Alimony, Maintenance and Support in Cases Filed before October 22, 1994 ] § 138.1 Alimony, Maintenance and Support in Cases Filed before October 22, 1994.
3 See Ankenbrandt v. Richards, 504 U.S. 689, 112 S. Ct. 2206, 119 L. Ed. 2d 468 (1992).
4 11 U.S.C. § 1328(a)(2); (c)(2). See § 345.1 [ Alimony, Maintenance or Support ] § 158.1 Alimony, Maintenance or Support.
5 See §§ 151.1 [ Priority Claims ] § 87.4 Priority Claims, 152.2 [ Alimony, Maintenance and Support ] § 88.4 Alimony, Maintenance and Support and 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.
6 See § 303.1 [ Alimony, Maintenance and Support in Cases Filed before October 22, 1994 ] § 138.1 Alimony, Maintenance and Support in Cases Filed before October 22, 1994.
7 See § 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.
8 In re Warner, 115 B.R. 233, 244 (Bankr. C.D. Cal. 1989) (Court denies confirmation on good-faith and other grounds of a plan paying child support arrearages in full and nothing to other unsecured claim holders. Minimal payment of unsecured claim holders “cannot be justified if it can only be achieved by having bankruptcy courts divest the state courts of their jurisdiction over child support enforcement. . . . Because of the policies favoring state resolution of support issues, bankruptcy court intervention into this area can be justified only if the benefits to be achieved under the Chapter 13 plan are significant enough substantially to outweigh the detrimental impact of the intervention. . . . An example of a compelling case for federal bankruptcy intervention might be when a Chapter 13 plan can provide for repayment in full of all creditors, including the nondischargeable child support claim, in a case that would qualify as ‘no asset’ if filed under Chapter 7.”).
9 In re Harris, 132 B.R. 166 (Bankr. S.D. Iowa 1991) (As a general rule, past-due child support cannot be included in a Chapter 13 plan; however, with consent of the recipient, deferred payment of back child support can be confirmed. Debtor has the burden of obtaining written consent.).
10 See §§ 152.2 [ Alimony, Maintenance and Support ] § 88.4 Alimony, Maintenance and Support, 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994 and 303.1 [ Alimony, Maintenance and Support in Cases Filed before October 22, 1994 ] § 138.1 Alimony, Maintenance and Support in Cases Filed before October 22, 1994. See, e.g., Mickelson v. Leser (In re Leser), 939 F.2d 669 (8th Cir. 1991); In re Benner, 146 B.R. 265 (Bankr. D. Mont. 1992); In re Husted, 142 B.R. 72 (Bankr. W.D.N.Y. 1992); In re Harris, 132 B.R. 166 (Bankr. S.D. Iowa 1991); In re Santa Maria, 128 B.R. 32 (Bankr. N.D.N.Y. 1991); In re Whittaker, 113 B.R. 531 (Bankr. D. Minn. 1990); In re Herkenhoff, 101 B.R. 585 (Bankr. E.D. Mo. 1989); In re Storberg, 94 B.R. 144 (Bankr. D. Minn. 1988); In re Haag, 3 B.R. 649 (Bankr. D. Or. 1980); In re Curtis, 2 B.R. 43 (Bankr. W.D. Mo. 1979).
11 In re Maras, 226 B.R. 696, 697 (Bankr. N.D. Okla. 1998) (Plan not proposed in good faith when sole purpose was to manage obligations for support to an ex-spouse characterized as part of “the most contentious and bitter proceedings in this Court’s experience in thirty years as a practicing attorney and a member of the judiciary.”). Accord Banks v. Vandiver (In re Banks), 248 B.R. 799, 804 (B.A.P. 8th Cir. 2000) (Ex-spouse’s claim for portion of debtor’s military retirement would probably be nondischargeable in a Chapter 7 case and is a factor supporting the bankruptcy court’s finding of a lack of good faith. “[T]he potential dischargeability of the debt under chapter 7 bodes against a finding of good faith. If the Debtor had filed for protection under chapter 7 of the Bankruptcy Code, it is likely that Vandiver would have had at least a colorable claim for nondischargeability of the debt at issue. See 11 U.S.C. § 523(a)(5), (15).”), aff’d, 267 F.3d 875 (8th Cir. 2001); In re Roberts, No. 00-01989-M, 2001 WL 1903453, at *4–*5 (Bankr. N.D. Okla. Jan. 16, 2001) (unpublished) (36-month, 8% plan motivated by debtor’s desire to avoid repaying an overpayment of alimony is not in good faith. “‘[A]n attempt to discharge a debt in a Chapter 13 case that is not dischargeable in a Chapter 7 is not per se bad faith unless combined with other factors that show an overall effort to avoid paying creditors.’ . . . The significance of Carrino’s claim cannot be disputed; it totals approximately fifty-three (53) percent of the total projected unsecured claims. . . . Roberts was motivated to seek relief under the Code by a desire to avoid paying Carrino. . . . More troubling to the Court is the cavalier attitude Roberts has exhibited with respect to this debt. Her own testimony establishes that she accepted the alimony payments after remarrying, knowing full-well that she was not entitled to them.”); In re James, 260 B.R. 498 (Bankr. D. Idaho 2001) (Chapter 13 plan that might discharge indemnity to former spouse with respect to prebankruptcy litigation over a failed business is indicative of a lack of good faith.); In re Lewis, 227 B.R. 886, 889 (Bankr. W.D. Ark. 1998) (Overwhelming evidence of bad faith when debtor’s sole motive in filing the case was to circumvent domestic relations orders; debtor absconded with mortgage payments from former spouse, attempted to evict his former spouse and child from the marital residence, precipitated a foreclosure and committed perjury on tax returns. “Debtor’s characterizations of the debts and his plan proposals reveal a desperate attempt to contravene the decision of the state court that finally incarcerated him for contempt for the same behavior.”); In re Wilson, 168 B.R. 260 (Bankr. N.D. Fla. 1994) (Bad faith under totality-of-circumstances test is shown where Chapter 13 case was filed minutes before the debtor was to appear in a state court to answer a contempt motion for failure to cooperate in discovery, purpose of Chapter 13 case was to avoid paying money to an ex-spouse, debtor showed a lack of candor in his testimony, schedule of income and expenses was not accurate, plan proposed a minimal distribution in only 36 months and debtor was relatively current with respect to all creditors other than ex-spouse.); In re Rogers, 140 B.R. 254 (Bankr. W.D. Mo. 1992) (Plan is not filed in good faith when budget is either false or the debtor cannot make the payments proposed by the plan; debtor converted to Chapter 13 immediately after a stipulation of nondischargeability in a Chapter 7 case; the debtor missed § 341 meetings, started Chapter 13 payments late and seems to be using Chapter 13 to avoid paying child support.); In re Santa Maria, 128 B.R. 32 (Bankr. N.D.N.Y. 1991) (Debtor’s proposal to pay 100% of disputed child support arrearage over five years was not in good faith when debtor failed to include any provision for resolution of the disputed child support obligation and plan seemed designed to frustrate collection or resolution of that matter.); In re Breon, 94 B.R. 576 (Bankr. D. Minn. 1988) (Bad faith to file a Chapter 13 case soon after a Chapter 7 case for the sole purpose of avoiding immediate payment of former spouse.).
12 In re Parker, 118 B.R. 539 (Bankr. S.D. Ohio 1990).
13 In re Selden, 116 B.R. 232 (Bankr. D. Or.), aff’d, 121 B.R. 59 (D. Or. 1990).
14 See Brown v. Davis (In re Davis), 172 B.R. 696, 701 (Bankr. S.D. Ga. 1993) (Court rejects ex-husband’s good-faith objection to plan that would discharge debts that the debtor was ordered to assume by a state domestic relations court. “That the subject debts are [the debtor’s] sole responsibility as the result of a divorce decree does not preclude her from proposing a Chapter 13 plan in good faith. Her income is modest; her budgeted living expenses are reasonable; although the dividend unsecured creditors will likely receive is not substantial, debtor proposes to devote all of her disposable income to fund her plan for a period of five years; and, having determined that the existence of the divorce decree and its financial impact on debtor does not equate to a bad faith petition, from debtor’s testimony her motivation in filing this Chapter 13 case appears consistent with the spirit and purpose of Chapter 13. Accordingly, I find her petition meets the ‘good faith’ test.”).