§ 124.6     Alimony and Support Collection after Confirmation
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 124.6, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The collection of alimony or support that might otherwise be excepted from the automatic stay by § 362(b)(2)(B) is complicated in a Chapter 13 case by the expanded definition of property of the estate in § 1306.1 Confirmation of a plan can further complicate or simplify collection of support.

[2]

Section 362(b)(2)(B) excepts from the automatic stay the collection of alimony, maintenance or support “from property that is not property of the estate.”2 At confirmation, § 1327(b) vests all property of the estate in the debtor except as otherwise provided in the plan or order of confirmation.3 If the vesting of property in the debtor under § 1327(b) removes, for example, the debtor’s postconfirmation wages from the Chapter 13 estate, the exception to the automatic stay in § 362(b)(2)(B) applies and alimony or support can be collected from postconfirmation wages without relief from the automatic stay.4 If the plan or order of confirmation preserves the estate, then the debtor’s pre- and postconfirmation wages and property remain property of the estate, protected by the automatic stay notwithstanding the exception in § 362(b)(2)(B).5 Even if the confirmed plan omits to overcome the vesting effect of § 1327(b), if the court interprets § 1327(b) to retain some or all property in the estate, that portion remains protected from support collection after confirmation.6

[3]

Strategically, any debtor who owes alimony or support should consider a provision in the plan that preserves the estate and overcomes the vesting effect of § 1327(b).7 The holder of a claim for alimony or support is then best advised to seek relief from the stay before attempting collection after confirmation.

[4]

The situation becomes a bit more complicated if the debt for alimony or support arises after the petition—for example, when the debtor is divorced after confirmation. A postpetition debt for alimony or support might be a consumer debt for purposes of § 1305(a)(2), but it is doubtful that Congress contemplated support claims to be postpetition claims for purposes of § 1305.8 The awkward possibility would then be presented that allowance and payment of a postpetition support claim requires the trustee’s consent in advance under § 1305(c).9 If a postpetition support obligation falls outside § 1305, the debtor may be prohibited from providing for the debt through the plan, and relief from the stay would be likely. On unusual facts, one court held that an ex-spouse’s postpetition state court action for custody and child support did not violate the automatic stay because the ex-spouse did not have a prepetition claim for support; however, garnishment of the debtor’s postpetition wages to satisfy the postpetition support order violated the stay because the wages were property of the Chapter 13 estate.10 This court declined to sanction the debtor’s ex-spouse for violating the stay, observing that the ex-spouse would have been granted relief from the stay to collect support had she asked before acting.

[5]

The courts have struggled to determine whether alimony and support claims are subject to the automatic stay after confirmation given the complicated interaction among §§ 362(b)(2)(B), 1306 and 1327.11 There is the extreme position taken by the U.S. Court of Appeals for the Fourth Circuit in Caswell v. Lang.12 In Caswell, the Fourth Circuit determined that a debt for past-due child support could not be included in a Chapter 13 plan even when the debtor proposed to pay the support claim in full. Courts adopting this view would grant relief from the stay notwithstanding confirmation of a plan that provided for full payment of a support claim.13 The Bankruptcy Appellate Panel for the Ninth Circuit concluded in Pacana v. Pacana-Siler (In re Pacana)14 that a child support claim holder is entitled to relief from the stay after confirmation, even if the plan calls for payment of arrearages and notwithstanding that the claim holder failed to object to confirmation. The BAP explained that “§ 362(b)(2) . . . §§ 1328(a)(2) and 523(a)(5) . . . manifest a legislative intent that child support obligations be excepted from the broad reach of §§ 1322 and 1327, and therefore from the effects of a Chapter 13 plan as well as the postconfirmation automatic stay.”15

[6]

Caswell and Pacana are misguided. The basic premise of these cases—that alimony and support claims are not affected by Chapter 13 plans and thus not subject to the automatic stay—is unsupported by the Code and produces an unwarranted distortion of the statutory effects of confirmation under § 1327. Alimony and support claimants are creditors and typically hold prepetition claims that are subject to the ordinary provisions of the automatic stay. The exception in § 362(b)(2)(B) is substantial evidence that Congress anticipated the use of Chapter 13 as a vehicle to pay alimony and support claims and carefully tailored the exception to the automatic stay to apply only with respect to property that is not property of the Chapter 13 estate.

[7]

The Bankruptcy Reform Act of 1994 conclusively demonstrates that Congress anticipated that Chapter 13 debtors would manage alimony, maintenance and support claims through Chapter 13 plans under the protection of the automatic stay. The 1994 Act contained several new protections for the collection of child support and alimony in bankruptcy cases.16 In particular, the 1994 Act rearranged the priorities in § 507 to make most debts for alimony, maintenance or support a seventh priority under § 507(a)(7).17 Because priority claims are entitled to full payment by § 1322(a)(2),18 claims for alimony, maintenance or support described in § 507(a)(7) must be paid in full through the plan to accomplish confirmation, and no plan that fails to do so can be confirmed over the objection of the support claim holder. As explained by the Bankruptcy Court for the District of Arizona, the 1994 amendments cripple the extreme position in Caswell and Pacana:

Reading [§§ 507(a)(7), 1322(a)(2) and 1328] together, the conclusion is undeniable that Congress intended in 1994 to change the law such that maintenance and support obligations not only may, but must, be treated specially and paid in full under a Chapter 13 plan. This conclusion undercuts the fundamental reasoning of [Pacana v. Pacana-Siler (In re Pacana), 125 B.R. 19 (B.A.P. 9th Cir. 1991)]. . . . Given this state of the law, this Court concludes that granting relief from stay in a Chapter 13 case in order to allow enforcement of those obligations in a state court should now be the exception rather than the rule. . . . The Debtor’s current plan provides that, contrary to the ordinary workings of § 1327(b), the property of the estate upon confirmation will not revest in the Debtor but remain with the estate. While a Chapter 13 plan and confirmation order may do this, the impact is to prevent a support creditor, such as the Movant, from enforcing her rights of collection in state court.19
[8]

Other courts have accurately read the Code to conclude that the automatic stay prohibits support collection after the petition and until confirmation; but if the plan and order of confirmation do not overcome § 1327(b), property vesting in the debtor at confirmation is not protected from collection efforts of a support claim holder.20 When the plan or confirmation order stated that “property of the estate shall not vest in the debtor until a discharge is granted,” all of the debtor’s property, including wages for services performed after confirmation, remained property of the estate protected from support collection by § 362(a).21 One court held that a child support claim holder’s continuation of a prepetition wage attachment violated the automatic stay notwithstanding the vesting effect of § 1327(b).22 This court reasoned: “[T]he Debtor’s future earnings during the Chapter 13 reorganization, until either the plan is completed or the case is converted, are property of the bankruptcy estate and are not subject to attachment. Creditors are instructed to file claims. The future earnings of the Debtor fund this reorganization. Without the automatic stay to protect those earnings, reorganization would not be possible.”23

[9]

One reported decision explores an interesting problem with the automatic stay, the vesting effect in § 1327(b) and the collection of postpetition interest on a nondischargeable support obligation. In Mudd v. Jacobson (In re Jacobson),24 a prepetition judgment for unpaid child support arrearages was entitled to accrue interest under state law. The plan proposed to pay the support judgment in full, but without interest consistent with the statutory treatment of priority claims under § 1322(a)(2)25 and the proscription against the allowance of unmatured interest in § 502(b)(2). The court acknowledged that the accumulating postpetition interest would be nondischargeable at the completion of payments under the plan,26 but the postpetition interest was not payable through the plan. The plan also provided “contrary to the ordinary workings of § 1327(b)” that property of the estate would not vest in the debtor at confirmation, leaving no property free of the automatic stay after confirmation. The court found an unfairness in this that required modification of the stay:

[R]equiring the [child support creditor] to wait until after the completion of 5 years of plan payments before she can then go back to state court to receive interest would, in this Court’s view, not adequately protect her rights. Therefore, in order for the stay not to be terminated, a mechanism must be provided by the Debtor for the current payment of the interest during the course of the Chapter 13. . . . [F]or the stay to remain in place, the plan needs to be modified such that the portion of the Debtor’s income that is necessary to pay the ongoing interest cost revests in the Debtor and is subject to collection by the [child support creditor] in the state courts. While this is a cumbersome procedure, it is necessary in order to protect [the child support creditor’s] rights to post-petition interest.27
[10]

Experienced practitioners know that Chapter 13 can be an efficient and reliable way to ensure that a former spouse or child is provided for from a debtor’s wages. Sophisticated attorneys design the plan so that support is paid in full through the plan—both prepetition arrearages and ongoing obligations. A provision that preserves the estate against the vesting effect in § 1327(b) protects the debtor’s ability to meet support obligations through the plan by safeguarding the debtor’s postconfirmation income. The combination of these provisions binds the support creditor to accept payment through the plan and prohibits the support creditor from resorting to self-help against the debtor after confirmation. A Chapter 13 case can be a stable and welcomed change in the financial relationship between the debtor and a former spouse.

[11]

A variation on these issues arises when a Chapter 13 debtor defaults on support payments after confirmation and is then the object of a criminal or quasi-criminal proceeding in state court. It has been held that a postpetition action to arrest and incarcerate the debtor for failure to make child support payments is excepted from the automatic stay by § 362(b)(2)(B).28 A postconfirmation criminal action to enforce support might also fit the exception to the automatic stay in § 362(b)(1).29

[12]

Even if a former spouse does not need relief from the stay to instigate or participate in a criminal proceeding to enforce support, it may be foolish to do so—disruption of the Chapter 13 case may impede rather than enhance the support creditor’s chances of getting money from the debtor. Payment of support in full through the plan with priority over payments to other creditors may be the best solution for all parties.


 

1  See § 58.3  Additional Protection for Postpetition Property and Income, § 58.5  Alimony and Support Exception and § 124.3  Does Confirmation Dissolve the Stay?BAPCPA significantly changed the treatment of alimony and support obligations, now called "domestic support obligations," see 11 U.S.C. § 110(14A). See § 58.6  Domestic Support Obligation Exception after BAPCPA§ 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA§ 136.21  Domestic Support Obligations after BAPCPA and § 159.5  Domestic Support Obligations: § 523(a)(5).

 

2  11 U.S.C. § 362(b)(2)(B), as redesignated by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994). See § 58.5  Alimony and Support Exception and § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

3  See §§ 207.1 [ Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) ] § 113.11  Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) and 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

4  See § 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3  Does Confirmation Dissolve the Stay?.

 

5  See § 58.5  Alimony and Support Exception, § 58.6  Domestic Support Obligation Exception after BAPCPA, § 113.11  Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) and § 124.3  Does Confirmation Dissolve the Stay?.

 

6  See §§ 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3  Does Confirmation Dissolve the Stay?.

 

7  See §§ 207.1 [ Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) ] § 113.11  Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b), 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and 243.1 [ Does Confirmation Dissolve the Stay? ] § 124.3  Does Confirmation Dissolve the Stay?. See, e.g., Mudd v. Jacobson (In re Jacobson), 231 B.R. 763, 767 (Bankr. D. Ariz. 1999) (Provision of plan overcoming the vesting effect of § 1327(b) prohibits postconfirmation collection of interest by child support creditor with a nondischargeable, priority claim; however, to avoid the grant of relief from the stay, plan must be modified “such that the portion of the Debtor’s income that is necessary to pay the ongoing interest cost revests in the Debtor and is subject to collection by the Movant in the state courts.”); In re Price, 179 B.R. 209 (Bankr. E.D. Cal. 1995) (District attorney violated automatic stay by continuing wage assignment to collect child support arrearages before and after confirmation where plan provided that property of the estate did not vest in the debtor. Exception for collection of child support in § 362(b)(2) was not triggered by § 1327(b) because confirmation order provided otherwise.).

 

8  See § 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

9  See § 137.1  Postpetition Claims before BAPCPA and § 137.2  Postpetition Claims after BAPCPA.

 

10  Heflin v. Heflin (In re Heflin), 145 B.R. 560 (Bankr. S.D. Ohio 1992).

 

11  See also § 58.3  Additional Protection for Postpetition Property and Income, § 58.5  Alimony and Support Exception, § 58.6  Domestic Support Obligation Exception after BAPCPA, § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and § 124.3  Does Confirmation Dissolve the Stay?.

 

12  757 F.2d 608 (4th Cir. 1985).

 

13  This misreading of the Code in Caswell v. Lang, 757 F.2d 608 (4th Cir. 1985), is criticized in § 136.20  Alimony, Maintenance and Support in Cases Filed after October 22, 1994§ 136.21  Domestic Support Obligations after BAPCPA and § 138.1  Alimony, Maintenance and Support in Cases Filed before October 22, 1994.

 

14  125 B.R. 19 (B.A.P. 9th Cir. 1991).

 

15  125 B.R. at 22. See also In re Engel, 151 B.R. 542, 542–43 (Bankr. D. Idaho 1993) (State bureau of child support enforcement is entitled to postconfirmation relief from the automatic stay notwithstanding confirmation of a plan proposing to pay child support arrears in full. “Upon confirmation of a chapter 13 plan all of the property of the estate becomes vested in the debtor. The child support payments as provided in the debtor’s plan are thus not property of the estate and section 362(b)(2) is applicable. Further §§ 523(a)(5) and 1328(a)(2) except child support obligations from discharge.” Citing Pacana v. Pacana-Siler (In re Pacana), 125 B.R. 19 (B.A.P. 9th Cir. 1991), and the “Congressional intent” that child support claimants need not wait in line with other creditors, state bureau “may proceed under the exception of § 362(b)(2) and stay relief is appropriate.”).

 

16  See § 136.20  Alimony, Maintenance and Support in Cases Filed after October 22, 1994 and § 136.21  Domestic Support Obligations after BAPCPA.

 

17  11 U.S.C. § 507(a)(7) as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994). See § 73.2  What Claims Are Priority Claims?§ 73.3  Priority Claims Added or Changed by BAPCPA§ 136.20  Alimony, Maintenance and Support in Cases Filed after October 22, 1994 and § 136.21  Domestic Support Obligations after BAPCPA.

 

18  See §§ 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment and 291.1 [ Treatment of Priority Claims ] § 136.1  Treatment of Priority Claims.

 

19  Mudd v. Jacobson (In re Jacobson), 231 B.R. 763, 765–67 (Bankr. D. Ariz. 1999).

 

20  See, e.g., Denn v. Aarestad, 37 B.R. 33 (Bankr. D. Minn. 1983) (Because § 1306 includes postpetition earnings in the Chapter 13 estate, prior to confirmation and until § 1327 comes into play, a Chapter 13 debtor’s postpetition earnings are protected by the automatic stay and cannot be subjected to withholding for delinquent child support.); Bernstein v. Nagel, 20 B.R. 595 (Bankr. M.D. Fla. 1982) (Section 362 does not stay collection of support in a Chapter 13 case because confirmation of the Chapter 13 plan vests property of the estate in the debtor. Neither postpetition earnings nor postpetition acquisitions are protected property of the Chapter 13 estate.). See also In re Daugherty, 117 B.R. 515, 518 (Bankr. D. Neb. 1990) (In dicta in a Chapter 7 case, “in a Chapter 13 . . . case, the automatic stay prohibits enforcement or collection of obligations of the debtor for alimony, maintenance, or support from property of the estate, including wages earned by the debtor before confirmation. After confirmation . . . the non-debtor spouse is not stayed from pursuing claims for alimony, maintenance or support against property of the debtor. Unless otherwise provided in the plan or the order confirming the plan, ‘property of the debtor’ will include wages which arose after confirmation, property which vested in the debtor upon confirmation and property received by the debtor after confirmation.”).

 

21  Lawson v. Lackey (In re Lackey), 148 B.R. 626 (Bankr. N.D. Ala. 1992). Accord Mudd v. Jacobson (In re Jacobson), 231 B.R. 763, 767 (Bankr. D. Ariz. 1999) (Plan provision overcoming vesting effect in § 1327(b) prevents a child support creditor from collecting postpetition interest on its nondischargeable, priority claim; however, to avoid relief from the stay, plan must be modified “such that the portion of the Debtor’s income that is necessary to pay the ongoing interest cost revests in the Debtor and is subject to collection by the Movant in the state courts. While this is a cumbersome procedure, it is necessary in order to protect Movant’s rights to post-petition interest.”); In re Price, 179 B.R. 209, 211–12 (Bankr. E.D. Cal. 1995) (Distinguishing Pacana, 125 B.R. 19 (B.A.P. 9th Cir. 1991), district attorney violated automatic stay by continuing wage assignment for the collection of child support arrearages after notice of filing of Chapter 13 case in which confirmed plan called for 100% payment of child support arrearages. “Although § 1327(b) vests property of the estate in the debtor upon plan confirmation unless the confirmation order or plan provides otherwise, Creditor in this case collected from Debtors’ wages prior to plan confirmation. Since the § 362(b)(2) exception only allows for collection from non-estate property, Creditor could not claim this exception from the stay for wages garnished prior to plan confirmation. Creditor is also barred from using § 1327(b) to claim the § 362(b)(2) exception for payments accepted subsequent to plan confirmation. The Trustee’s Order Confirming Debtor’s Plan specifically states that ‘the property of the estate does not vest in the Debtor upon confirmation of the Plan.’ . . . In the face of such language, it would appear that the property remains property of the estate until the case is closed, dismissed, or a discharge is granted or denied. . . . Creditor has willfully violated the automatic stay by accepting payments from its wage assignment order after receiving notice of Debtors’ bankruptcy.” Because the district attorney did not file a proof of claim, sovereign immunity precluded monetary damages; however, declaratory and injunctive relief were allowed, including an order that the district attorney cease accepting payments pursuant to its prepetition wage assignment. Permitting the district attorney to retain the funds already collected from the wage assignment was not prejudicial to the debtor or the bankruptcy estate because the plan called for payment in full of the prepetition child support arrearages and the claim was nondischargeable and continuing to accrue interest.).

 

22  Gaertner v. Choske (In re Henry), 143 B.R. 811 (Bankr. W.D. Pa. 1992). See also In re Suarez, 149 B.R. 193 (Bankr. D.N.M. 1993) (Garnishment of a Chapter 13 debtor’s postpetition wages to collect a prepetition alimony award is a violation of the automatic stay. It is “immaterial” that the order of garnishment was issued by the state court prior to the filing of the Chapter 13 petition.).

 

23  143 B.R. at 814.

 

24  231 B.R. 763 (Bankr. D. Ariz. 1999).

 

25  See § 73.5  Interest Not Required, with Exceptions, § 73.6  Treatment of Priority Claims Changed by BAPCPA§ 136.16  Postpetition Interest on Priority Claims before BAPCPA and § 136.17  Postpetition Interest on Priority Claims after BAPCPA.

 

26  See § 158.1  Alimony, Maintenance or Support and § 159.5  Domestic Support Obligations: § 523(a)(5)See also § 158.2  Student Loans and § 159.6  Student Loans: § 523(a)(8).

 

27  231 B.R. at 767.

 

28  Williams v. Florida, 72 B.R. 508 (Bankr. M.D. Fla. 1987). See Rogers v. Overstreet (In re Rogers), 164 B.R. 382, 387, 391 (Bankr. N.D. Ga. 1994) (Ankenbrandt v. Richards, 504 U.S. 689, 112 S. Ct. 2206, 119 L. Ed. 2d 468 (1992), did not overrule the Eleventh Circuit’s decision in Carver v. Carver, 954 F.2d 1573 (11th Cir. 1992). Chapter 13 petition filed on the day the debtor was to be incarcerated for failing to pay child support was filed in bad faith where its only purpose was to avoid the domestic relations obligations. The automatic stay was not violated when the debtor was incarcerated later in the day, because incarceration “was an act of the state court trying to enforce its judgment, and it was not an act of the [debtor’s ex-spouse]. As such, the [ex-spouse] did not violate the stay when the Debtor was placed in jail.” Ex-spouse was under no duty to prevent the state court from carrying out its prepetition order that the debtor would be incarcerated if the debtor did not bring child support current. Although “the § 362(b)(2) [redesignated as § 362(b)(2)(B) by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994)] exception has little application in chapter 13 cases since the term ‘property of the estate’ includes earnings of the debtor acquired after the commencement of the bankruptcy case,” collection of prepetition support from the portion of the debtor’s income that is not committed to funding the plan did not violate the automatic stay.). But see Farmer v. Cole (In re Farmer), 150 B.R. 68 (Bankr. N.D. Ala. 1991) (If proved, allegations that former spouse and state court judge intend to incarcerate the debtor unless the debtor pays arrearages in alimony and support would constitute a violation of the automatic stay because the expanded definition of “property of the estate” in a Chapter 13 case in § 1306(a) overcomes the exception to the automatic stay in § 362(b)(2) [redesignated as § 362(b)(2)(B) by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994)] in Chapter 13 cases. Any effort to enforce a prepetition child support or alimony award against property of the Chapter 13 estate would not be excepted from the automatic stay because the resources for complying with any state court order to pay the arrearages would be property of the expanded Chapter 13 estate.).

 

29  11 U.S.C. § 362(b)(1) provides: “The filing of a petition . . . does not operate as a stay . . . of the commencement or continuation of a criminal action or proceeding against the debtor.” See § 70.1 [ Criminal Action or Proceeding Exception ] § 58.7  Criminal Action or Proceeding Exception. See, e.g., Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) (Criminal prosecution and incarceration of a Chapter 13 debtor for nonpayment of child support is excepted from the automatic stay by § 362(b)(1) without regard to whether payment of the support would abate the prosecution or punishment.).