§ 136.20     Alimony, Maintenance and Support in Cases Filed after October 22, 1994
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 136.20, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Congress threw bankruptcy practitioners a curve ball in 1994 with the pronouncement that debts for alimony, maintenance or support are priority claims in cases filed after October 22, 1994. As amended, 11 U.S.C. § 507(a)(7) reads:

(7) Seventh, allowed claims for debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that such debt—
(A) is assigned to another entity, voluntarily, by operation of law, or otherwise; or
(B) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support.1
[2]

Section 304 of the 1994 Act,2 entitled “Protection of Child Support and Alimony,” contained many changes to the Code “intended to provide greater protection for alimony, maintenance or support obligations owing to a spouse, former spouse, or child of a debtor in bankruptcy.”3 As explained by Congressman Brooks, “The Committee believes that a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations.”4 The 1994 amendments dispel any lingering doubt whether Chapter 13 plans are an available vehicle for the management of alimony, maintenance and support debts.5

[3]

In Chapter 13 cases filed after October 22, 1994, debts that fit the new priority in § 507(a)(7) must be paid in full through the plan under § 1322(a)(2) unless the claim holder agrees to a different treatment.6 An unsecured claim for alimony, maintenance or support can be paid in full in deferred payments through the plan, without postpetition interest.7

[4]

The new priority in § 507(a)(7) is not limited to unsecured claims. Although other prepetition debts entitled to priority under § 507(a) are specifically denominated as unsecured claims, in cases filed after October 22, 1994, alimony, maintenance or support can be both a priority claim under § 507(a)(7) and a secured claim under § 506(a).8 The holder of such a claim will probably be entitled to the special treatment afforded priority claims and to the rights of a secured claim holder—payment in full under § 1322(a)(2) and lien retention with present value (postpetition interest) under § 1325(a)(5).

[5]

Section 507(a)(7) is an odd formulation of the debts for alimony, maintenance or support that are entitled to priority. Debts for alimony, maintenance or support described in § 523(a)(5) are nondischargeable in Chapter 13 cases under § 1328(a)(2) and (c)(2).9 Whether by intent or by accident,10 the alimony, maintenance or support that is nondischargeable in a Chapter 13 case under § 523(a)(5) is not precisely the same as the alimony, maintenance or support that is entitled to the seventh priority in § 507(a)(7).

[6]

The difference in wording is in the “exceptions” for debts that are assigned in §§ 507(a)(7)(A) and 523(a)(5)(A). Under § 507(a)(7)(A) a debt for alimony, maintenance or support loses its priority to the extent assigned to another entity, voluntarily or otherwise.11 In contrast, a debt for alimony, maintenance or support is nondischargeable under § 523(a)(5) even if assigned, to the extent it was assigned pursuant to the Social Security Act or assigned to a state or federal government.12 In other words, the class of debts for alimony, maintenance or support that is nondischargeable in a Chapter 13 case is broader than the class that is entitled to priority. One court has concluded that the lack of symmetry between § 507(a)(7) and § 523(a)(5) is a distinction without a difference because even assigned support claims must be paid in full in Chapter 13 cases to accomplish confirmation and avoid relief from the automatic stay.13

[7]

The different wording produces three possible characterizations for alimony, maintenance or support debts in Chapter 13 cases filed after October 22, 1994:

 1.
Alimony, maintenance or support that fits the description for priority in § 507(a)(7) is also nondischargeable under §§ 523(a)(5), 1328(a)(2) and 1328(c)(2).
 

 

 2.
Alimony, maintenance or support assigned to a state or federal government or assigned pursuant to the Social Security Act is nondischargeable but is not entitled to priority under § 507(a)(7).
 

 

 3.
Alimony, maintenance or support assigned to any entity other than a state or federal government and not assigned pursuant to the Social Security Act is dischargeable and is not entitled to priority under § 507(a)(7).
 

 

[8]

In bankruptcy cases filed after October 22, 1994, priority status favors the separate classification of alimony, maintenance or support.14 There was controversy under prior law whether a Chapter 13 debtor could separately classify alimony, maintenance or support for more favorable treatment through the plan.15 That most such claims are now entitled to priority enhances the debtor’s argument that it is “fair discrimination” to separately classify alimony, maintenance or support for more favorable treatment. In any Chapter 13 case in which the debtor is financially unable to pay all unsecured claim holders in full, separate classification of alimony, maintenance or support will be necessary to accomplish confirmation because claims entitled to priority under § 507(a)(7) must be paid in full under § 1322(a)(2) (absent consent to other treatment).16

[9]

Because all support obligations entitled to priority under § 507(a)(7) are also nondischargeable, Chapter 13 debtors face the problem of managing postpetition interest on support claims. Typically, alimony and support judgments accrue interest under state law. Postpetition interest on a nondischargeable support debt is itself a nondischargeable debt that will haunt the debtor after completion of payments under the plan unless interest is paid during the Chapter 13 case. Unfortunately, the maturing postpetition interest is not an allowable claim under § 502(b)(2). This is the same problem Chapter 13 debtors face dealing with nondischargeable postpetition interest that accrues on nondischargeable student loans.17 The typical solution is to separately classify the support obligation in the plan and propose to pay the priority debt with postpetition interest. Such plans do not always survive objection from the trustee or from an unsecured claim holder that is not also receiving postpetition interest.18 One reported decision required a Chapter 13 debtor to modify the plan to permit a child support creditor to collect postconfirmation interest in state court during the Chapter 13 case.19

[10]

The question whether the support obligation is assigned, discussed immediately above, becomes tangled with the question whether the claim is priority or nondischargeable or both and then affects the question whether the debtor can separately classify the claim. Support claims in Chapter 13 cases often have components that were assigned before the petition, though the debtor may not be aware of the assignment. For example, assignment is automatic under some state laws when the debtor’s support obligation was covered by state aid under AFDC. The portion of the support claim that was assigned forfeits priority status in a Chapter 13 case under § 507(a)(7)(A), but the entire support claim remains nondischargeable under § 523(a)(5)(A).

[11]

This complicates the debtor’s classification arguments. The assigned portion is an ordinary unsecured claim for distribution purposes notwithstanding that it is nondischargeable and may accrue nondischargeable postpetition interest. The debtor wants to pay the support claim in full through the plan without regard to priority and, if allowed, would be best off to pay postpetition interest through the plan. Several reported decisions have recognized that the assigned portion of a support claim is not entitled to priority in a Chapter 13 case notwithstanding that it retains its nondischargeable character.20

[12]

Buried in this pile of new issues is an exception to the priority in § 507(a)(7) for liabilities that are “designated as alimony, maintenance or support” but that are not “actually in the nature of alimony, maintenance or support.”21 This exception to priority in § 507(a)(7) is identical to the exception to nondischargeability in § 523(a)(5)(B).22 Consumer bankruptcy practitioners know that this exception is an endless source of fog in the litigation of nondischargeability complaints under § 523(a)(5). In § 523(a)(5) litigation, the bankruptcy courts have been required to develop “federal domestic relations law” to determine whether a debt is “actually in the nature of alimony, maintenance or support.” Not the least of the difficult issues is whether “changed circumstances” between the time of divorce and the time of bankruptcy affects whether a debt is “actually in the nature of alimony, maintenance or support.”23

[13]

Chapter 13 debtors in cases filed after October 22, 1994, will have to litigate the exception in § 507(a)(7)(B) to determine whether debts for alimony, maintenance or support are entitled to priority. These will not be academic discussions. A debt that is designated as alimony, maintenance or support but that is not actually in the nature of alimony, maintenance or support will not be a priority claim and will not be entitled to full payment under § 1322(a)(2); the findings of the bankruptcy court on this issue under § 507(a)(7)(B) may have estoppel effect in any subsequent dischargeability litigation under § 523(a)(5)(B) and § 1328(a)(2) or § 1328(c)(2). This litigation will take place at the beginning of the Chapter 13 case because characterization of the debt will determine many other features of the plan—for example, how much the debtor has to pay to the trustee and the percentage that will be paid to unsecured claim holders. Because § 507(a)(7) and § 523(a)(5)(B) are so similarly worded, the courts will look to the long history of § 523(a)(5) decisions for guidance and Chapter 13 cases litigating § 507(a)(7) priority will look like dischargeability trials.24

[14]

Notice that the 1994 amendments did nothing to solve the problem of paying ongoing support obligations through a Chapter 13 plan. A postpetition support payment unmatured on the date of the filing that is excepted from discharge under § 523(a)(5) is disallowed by § 502(b)(5).25 In the typical Chapter 13 case, an ongoing support obligation falls out of the debtor’s Chapter 13 budget as a payment necessary for the maintenance or support of the debtor or of a dependent.26 But enlightened debtors’ attorneys encourage the payment of ongoing support obligations through the Chapter 13 plan to stabilize and monitor those payments during the Chapter 13 case. This is common notwithstanding that the courts have recognized that the Code does not altogether support the practice.27

[15]

As if domestic relations issues in bankruptcy cases were not convoluted enough, the 1994 Act contained this new provision for “child support creditors”:

        Appearance Before Court.—Child support creditors or their representatives shall be permitted to appear and intervene without charge, and without meeting any special local court rule requirement for attorney appearances, in any bankruptcy case or proceeding in any bankruptcy court or district court of the United States if such creditors or representatives file a form in such court that contains information detailing the child support debt, its status, and other characteristics.28
[16]

The form referenced in this new law was adopted by the Director of the Administrative Office of the United States Courts, effective January 31, 1995.29 On the face of this new section, upon filing the form, the holder of a child support claim, or any representative of the claim holder, can appear in a Chapter 13 case, notwithstanding local court rule requiring representation or appearance only through an attorney. Representatives is not defined but in this context would seem to include any entity listed in a filed form. These nonlawyer representatives will be litigating the complex § 507(a)(7)(B) issues discussed above on behalf of their (unsuspecting) child support creditors.

[17]

However well-meaning Congress may have been to free needy child support creditors of obstacles to collection from debtors, this approach is misdirected. Child support creditors are not well served to be encouraged to send Uncle Bob to court instead of hiring bankruptcy counsel. Chapter 13 practitioners face the daunting task of managing a swell of pro se child support creditors, once removed.


 

1  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).

 

2  Pub. L. No. 103-394, § 304, 108 Stat. 4106 (1994).

 

3  140 Cong. Rec. H10,752, H10,770 (section-by-section analysis by Congressman Brooks).

 

4  140 Cong. Rec. H10,752, H10,770 (section-by-section analysis by Congressman Brooks).

 

5  See Mudd v. Jacobson (In re Jacobson), 231 B.R. 763, 765 (Bankr. D. Ariz. 1999) (“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)].”); In re Camacho, 211 B.R. 744, 745 (Bankr. D. Nev. 1997) (“Since [Pacana v. Pacana-Siler (In re Pacana), 125 B.R. 19 (B.A.P. 9th Cir. 1991),] . . . § 507 has been amended to include child support obligations as a priority debt. Through this amendment, Congress has announced its intent to allow bankruptcy courts to include payment of child support obligations in chapter 13 plans.”).

 

6  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. See, e.g., Beaupied v. Chang (In re Chang), 163 F.3d 1138 (9th Cir. 1998) (Claims payable to father and guardian ad litem for debtor’s child are priority claims that must be paid in full through the Chapter 13 plan.); Dewey v. Dewey (In re Dewey), 223 B.R. 559 (B.A.P. 10th Cir. 1998) (Hold harmless provision of prepetition property settlement agreement is a priority claim under § 507(a)(7); confirmation denied because plan fails to treat claim as a priority claim entitled to full payment under § 1322(a)(2).); In re Messinger, 241 B.R. 697 (Bankr. D. Idaho 1999) (State court judgment for support is priority claim under § 507(a)(7) that must be paid in full through the Chapter 13 plan under § 1322(a)(2).); In re Pitt, 240 B.R. 908 (Bankr. N.D. Cal. 1999) (Support debts are nondischargeable and must be paid in full through the plan under § 1322(a)(2).); Brugger v. Brugger (In re Brugger), 254 B.R. 321 (Bankr. M.D. Pa. 2000) (Transfers of assets ordered by state court were actually in the nature of alimony, maintenance or support for priority purposes under §§ 523(a)(5), 507(a)(7) and 1322(a)(2).); In re Dorf, 219 B.R. 498, 501 (Bankr. N.D. Ill. 1998) (Prepetition support arrearages are nondischargeable, entitled to priority and must be paid in full through the plan under § 1322(a)(2).).

 

7  See §§ 100.1 [ Deferred Payments Are Permitted ] § 73.4  Deferred Payments Are Permitted, 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions and 299.1 [ Postpetition Interest on Priority Claims ] § 136.16  Postpetition Interest on Priority Claims before BAPCPA. See, e.g., In re Messinger, 241 B.R. 697, 701 (Bankr. D. Idaho 1999) (State court support judgment is a priority claim that must be paid in full under § 1322(a)(2), but full payment does not include payment of postpetition interest. “[A]lthough Ms. Hargrave’s claim is given priority status and she must be paid in full under § 1322(a)(2), she is not entitled to insist on payment of postpetition interest through the plan on the debt owed to her.” Accruing postpetition interest will not be dischargeable upon completion of payments under the plan.); In re Pitt, 240 B.R. 908, 911 (Bankr. N.D. Cal. 1999) (“[S]upport debts bear interest under non-bankruptcy law but § 1322(a)(2) does not require that such interest be paid through the plan and a claim for post-petition interest on unsecured debt is not allowable against a bankruptcy estate under § 502 and Bruning [v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964)]. Unlike priority tax debts, however, support debts are not dischargeable in Chapter 13—therefore, any part of the debt that is not paid during the term of the plan and remains outstanding post-discharge (e.g., post-petition interest) is not rendered unenforceable against the bankruptcy debtor by virtue of the Chapter 13 discharge.”); In re Slater, 188 B.R. 852, 855–56 (Bankr. E.D. Wash. 1995) (Citing Spokane Railway Credit Union v. Gonzales (In re Gonzales), 172 B.R. 320 (E.D. Wash. 1994), plan can separately classify judgment for child support for payment in full without interest notwithstanding that the claim is nondischargeable and will accrue interest under state law that will remain a nondischargeable liability of the debtor at completion of payments to other creditors. “[T]his Court concludes that it has the authority to include child support arrearages in a Chapter 13 plan . . . . [E]ven though the debtor’s plan does not provide for interest on the non-dischargeable child support debt, the plan is confirmable because the interest may continue to accrue against the debtor to be recovered from the debtor personally at the conclusion of the case. Furthermore, there is no requirement that the non-dischargeable debt—with or without interest—be paid in full during the pendency of the case.” Cites Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), and Leeper v. Pennsylvania Higher Education Assistance Agency, 49 F.3d 98 (3d Cir. 1995).); In re Crable, 174 B.R. 62 (Bankr. W.D. Ky. 1994) (Nondischargeable judgment for prepetition child support arrearages accumulates postpetition and postconfirmation interest at the Kentucky statutory rate of 12%; plan payment of arrearages without interest does not defeat the former spouse’s right to postpetition and postconfirmation interest. Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), and analogizing to student loans, child support arrearages are nondischargeable and accrue postpetition and postconfirmation interest, and the accumulating interest is nondischargeable upon completion of payments. However, during the Chapter 13 case, the arrearage claim holder cannot have an allowable claim for the postpetition (unmatured) interest.). But see Silverstein v. Glazer (In re Silverstein), 186 B.R. 85 (Bankr. W.D. Tenn. 1995) (Interest on state court judgment for child support arrearage pursuant to general state statute for interest on all judgements is not actually in the nature of support and therefore is dischargeable in § 523(a)(5) proceeding.).

 

8  See §§ 100.3 [ Secured Priority Claims? ] § 73.7  Secured Priority Claims? and 300.1 [ Secured Priority Claims? ] § 136.18  Secured Priority Claims before BAPCPA.

 

9  See §§ 345.1 [ Alimony, Maintenance or Support ] § 158.1  Alimony, Maintenance or Support and 354.1 [ Exceptions to Hardship Discharge ] § 160.6  Exceptions to Hardship Discharge before BAPCPA.

 

10  By one insider’s account, the incongruity between § 523(a)(5) and § 507(a)(7) resulted when a congressional staffer in 1994 consulted a 1979 edition of the United States Code and copied the language of § 523(a)(5) into new § 507(a)(7). The staffer was unaware that § 523(a)(5) was amended in 1981 to limit the “exception to the exception” for assigned support debts. See Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, § 2334(c), 95 Stat. 357.

 

11  See 11 U.S.C. § 507(a)(7)(A), quoted above in this section. See, e.g., In re Beverly, 196 B.R. 128, 133 (Bankr. W.D. Mo. 1996) (Child support arrearages are priority claims entitled to full payment notwithstanding that they may have been assigned to a government agency. Debtor listed unsecured non-priority debt of $33,239.15 for child support arrearages. Debtor listed creditor as “Child Support Enforcement Unit” and claimed that the child support arrearages were assigned and thus not entitled to priority under § 507(a)(7). After calling 800 number in phone book for “Child Support Enforcement,” court determined that support arrearage was not actually “assigned” as contemplated in § 507(a)(7) because the Division of Child Support Enforcement “does not make payments to the mother in lieu of Debtor’s payments. Rather, it is a government agency which attempts to assist in administering and enforcing the payment of child support. . . . The debt is still owed to the mother but the payments are made through the agency, so no assignment has occurred.”); Beaupied v. Doe (In re Doe), 193 B.R. 12, 19 (Bankr. N.D. Cal. 1996) (“[T]he State Court’s order requiring Debtor to reimburse Father for paying ‘more than his share’ to these experts does not constitute an assignment of these debts that would take away priority status under § 507(a)(7)(A).”), rev’d sub nom. Beaupied v. Chang (In re Change), 210 B.R. 578 (B.A.P. 9th Cir. 1997), rev’d, 163 F.3d 1138 (9th Cir. 1998), cert. denied, 526 U.S. 1149, 119 S. Ct. 2029, 143 L. Ed. 2d 1039 (1999).

 

12  11 U.S.C. § 523(a)(5) provides:

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that—
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to section 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State).
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.

 

13  In re Beverly, 196 B.R. 128, 131–33 (Bankr. W.D. Mo. 1996) (“Section 507(a)(7) is nearly identical to § 523(a)(5), except that § 523(a)(5) provides two exceptions to the exception as to the assignments, whereas § 507(a)(7) does not. . . . In other words, under § 523(a)(5)(A), if the debt for child support was assigned to a governmental unit it cannot be discharged in bankruptcy. . . . If, on the other hand, it was assigned to a non-governmental agency, it would be dischargeable. . . . [T]he omission of the exception to the exception from § 507(a)(7) is, in its effect, meaningless when it is read harmoniously with § 523(a)(5)(A) and the judicial interpretation of that section. Section 523(a)(5)(A) still mandates that claims for child support which were assigned to a government agency are nondischargeable. And as several courts . . . found prior to the addition of § 507(a)(7) to the Act, those claims are to be given preferential treatment in a Chapter 13 plan. If they are not, the automatic stay may be lifted as to the child support arrearages and the claimant may pursue other remedies. . . . Such a claim should not be classified with other general unsecured debts receiving only a percentage of the claim. As such, a debt for child support which has been assigned to a government agency should be treated as though it is a priority debt in a Chapter 13 plan: it should be paid in full.”).

 

14  See §§ 151.1 [ Priority Claims ] § 87.4  Priority Claims and 152.2 [ Alimony, Maintenance and Support ] § 88.4  Alimony, Maintenance and Support.

 

15  See § 152.2 [ Alimony, Maintenance and Support ] § 88.4  Alimony, Maintenance and Support.

 

16  See § 151.1 [ Priority Claims ] § 87.4  Priority Claims.

 

17  See §§ 153.1 [ Student Loans ] § 88.6  Student Loans and 346.1 [ Student Loans ] § 158.2  Student Loans.

 

18  See, e.g., In re Slater, 188 B.R. 852, 855–56 (Bankr. E.D. Wash. 1995) (Citing Spokane Railway Credit Union v. Gonzales (In re Gonzales), 172 B.R. 320 (E.D. Wash. 1994), plan can separately classify judgment for child support for payment in full without interest notwithstanding that the claim is nondischargeable and will accrue interest under state law that will remain a nondischargeable liability of the debtor at completion of payments to other creditors. “[T]his Court concludes that it has the authority to include child support arrearages in a Chapter 13 plan . . . . [E]ven though the debtor’s plan does not provide for interest on the non-dischargeable child support debt, the plan is confirmable because the interest may continue to accrue against the debtor to be recovered from the debtor personally at the conclusion of the case. Furthermore, there is no requirement that the non-dischargeable debt—with or without interest—be paid in full during the pendency of the case.” Cites Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), and Leeper v. Pennsylvania Higher Education Assistance Agency, 49 F.3d 98 (3d Cir. 1995).); In re Crable, 174 B.R. 62 (Bankr. W.D. Ky. 1994) (Nondischargeable judgment for prepetition child support arrearages accumulates postpetition and postconfirmation interest at the Kentucky statutory rate of 12%. Plan payment of arrearages without interest does not defeat the former spouse’s right to postpetition and postconfirmation interest. Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), and analogizing to student loans, child support arrearages are nondischargeable and accrue postpetition and postconfirmation interest, and the accumulating interest is nondischargeable upon completion of payments. However, during the Chapter 13 case, the arrearage claim holder cannot have an allowable claim for the postpetition (unmatured) interest.). But see Silverstein v. Glazer (In re Silverstein), 186 B.R. 85 (Bankr. W.D. Tenn. 1995) (Interest on state court judgment for child support arrearage pursuant to general state statute for interest on all judgements is not actually in the nature of support and therefore is dischargeable in § 523(a)(5) proceeding.).

 

19  Mudd v. Jacobson (In re Jacobson), 231 B.R. 763, 765–67 (Bankr. D. Ariz. 1999) (“Under the Movant’s state court judgment, and in accordance with state law, the Movant is entitled to interest on the unpaid child support arrearages. . . . [Section] 1322(a)(2) . . . does not say that the deferred cash payments must have a present value equal to the amount of the claim . . . . [T]he proscription against ‘unmatured’ interest of 11 U.S.C. § 502(b)(2) would mean that interest should not be paid from the estate. However, 11 U.S.C. § 1328(a)(2) makes clear that support and maintenance claims are not dischargeable in a Chapter 13 . . . . [T]here is the following conundrum; although the interest is not dischargeable under 11 U.S.C. § 1328(a)(2), is it nevertheless not payable through the plan under 11 U.S.C. § 502(b)(2) . . . . [R]equiring the Movant 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. 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. Therefore, for 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 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.”).

 

20  See, e.g., In re Gray, 269 B.R. 881, 887, 889 (Bankr. N.D. Ala. 2001) (Portion of state’s claim that is reimbursement of benefits paid by the state to grandmother with custody of debtor’s children was assigned by operation of law to the state and lost its priority; however, portion of state’s claim that is child support arrearages payable to grandmother and not covered by benefits from the state was not assigned to the state and retains priority. “[S]ection 507(a)(7)(A) is plain,” and court should not undertake any interpretive effort to conform that section to the 1981 amendment to § 523(a)(5)(A). Under Alabama law, a recipient of AFDC is deemed to have made an assignment to the state “up to the amount of aid paid by the department to the recipient.” “Under the plain language of section 507(a)(7)(A), assigned claims are excluded from priority status. . . . [T]he portions of claims . . . that were not assigned to the State, that is, those amount[s] in excess of the amounts paid by the State to the individuals, do not lose the priority status conferred by section 507(a)(7).”); In re Blackstone, 269 B.R. 699, 708 (Bankr. D. Idaho 2001) (“[D]elinquent support obligations which were assigned to Orange County would be nondischargeable in chapter 13 under § 1328(a)(2) and § 523(a)(5)(A), but not entitled to treatment as priority claims under § 507(a)(7) and § 13[2]2(a)(2). To the extent that the claim was not assigned, and if the County simply acts as a collecting agency for the benefit of the ex-spouse or children, priority treatment would appear proper.”).

 

21  11 U.S.C. § 507(a)(7)(B).

 

22  See above in this section.

 

23  See, e.g., Fitzgerald v. Fitzgerald (In re Fitzgerald), 9 F.3d 517 (6th Cir. 1993).

 

24  See, e.g., Beaupied v. Chang (In re Chang), 163 F.3d 1138, 1141–42 (9th Cir. 1998) (Claims payable to father and guardian ad litem for debtor’s child are nondischargeable under § 523(a)(5) and are priority claims entitled to full payment through the Chapter 13 plan. “We hold in the instant case that the identity of the payee is less important than the nature of the debt. . . . We agree with the bankruptcy court’s holding that application of § 507(a)(7) should be coincidental with application of § 523(a)(5).”); Santa Cruz County v. Cervantes (In re Cervantes), 229 B.R. 19, 21–23 (B.A.P. 9th Cir. 1998) (Applying Visness v. Contra Costa County (In re Visness), 57 F.3d 775 (9th Cir. 1995), cert. denied, 516 U.S. 1099, 116 S. Ct. 828, 133 L. Ed. 2d 770 (1996), support arrearages that accrued before state court judgment established support obligation do not fall within the exception to discharge in § 523(a)(5)(A), but postjudgment arrearages are nondischargeable. “[I]f a debt for alimony or support of a spouse or child of the debtor is assigned to another entity, the debt is dischargeable, unless the debt is assigned pursuant to 42 U.S.C. § 602(a)(26). . . . In Visness, . . . the Ninth Circuit held that a debt, . . . was nondischargeable under § 523(a)(5)(A) only if the debtor’s child, spouse or former spouse has accrued support rights at the time of the assignment. . . . [W]e are bound by the Ninth Circuit’s determination that a custodial parent’s or child’s right to support does not accrue until a court order establishing a support obligation is entered.” Panel refuses county’s invitation to correct “inadvertent” omission of § 523(a)(18) from the nondischargeability provisions of Chapter 13.), rev’d, 219 F.3d 955, 960–62 (9th Cir. 2000) (1996 amendments to § 656(b) of the Social Security Act render assigned support obligation nondischargeable in Chapter 13 case. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193, 110 Stat. 2105 (Aug. 22, 1996), also known as the Welfare Reform Act of 1996, amended 42 U.S.C. § 656(b) to state that “[a] debt . . . owed under State law to a State . . . or municipality, . . . that is in the nature of support, and that is enforceable under this part is not released by a discharge in bankruptcy under Title 11. . . . [T]he new section 656(b) does not refer to an assignment under section 602(a)(26). . . . [T]he discharge exception of section 656(b) applies to any discharge under Title 11—in other words, to any bankruptcy case. . . . [S]ection 656(b) provides an independent basis upon which to find a child support debt nondischargeable in any bankruptcy proceeding under Title 11. . . . Section 656(b) prohibits the discharge of a debt (1) owed under state law to a state or municipality, (2) that is ‘in the nature of support,’ and (3) that is enforceable under part D of Title IV of the Social Security Act.”); Dewey v. Dewey (In re Dewey), 223 B.R. 559 (B.A.P. 10th Cir. 1998) (Hold harmless in prepetition property settlement agreement is actually in the nature of alimony, maintenance or support and is a priority claim under § 507(a)(7). Confirmation denied because plan fails to treat ex-spouse’s contingent claim as a priority claim entitled to full payment under § 1322(a)(2).); In re Grovatt, No. CIV. A. 00-955, 2000 WL 1281524 (E.D. Pa. Sept. 5, 2000) (Obligations to pay college education expenses and to pay mortgage on former marital residence are actually in the nature of alimony, maintenance or support.); In re Fiore, 290 B.R. 138 (Bankr. E.D. Mo. 2003) (Attorney fees for legal services related to modification of child support awarded by family court are a priority claim under § 507(a)(7) entitled to full payment under § 1322(a)(2).); Brunson v. Austin (In re Austin), 271 B.R. 97, 104 (Bankr. E.D. Va. 2001) (Agreement to pay credit card bills was actually in the nature of support because of large income disparity between the debtor and ex-spouse; agreement to pay ex-spouse 25% of proceeds from settlement of personal injury lawsuit was not actually in the nature of support and thus not entitled to priority. “[C]ourts have used the case law interpreting § 523(a)(5) to determine whether the subject debt is actually in the nature of alimony, maintenance or support because the language of § 507(a)(7) mirrors that of § 523(a)(5).”); Brugger v. Brugger (In re Brugger), 254 B.R. 321 (Bankr. M.D. Pa. 2000) (Award to ex-spouse of 50% interest in the debtor’s closely held corporation was actually in the nature of alimony, maintenance and support; however, balance of state court award was an equitable distribution of property under § 523(a)(15) and was not entitled to priority treatment through the Chapter 13 plan. Transfers of assets ordered by state court were actually in the nature of alimony, maintenance or support for priority purposes under §§ 523(a)(5) and 1322(a)(2). Relief from the stay was granted to permit the asset transfers to take place. Balance of the debt ordered by the state domestic relations court was not in the nature of alimony, maintenance or support and was not entitled to priority or full payment. Plan failed best-interests-of-creditors test in § 1325(a)(4) because ex-spouse was the only creditor and the property interests retained by the debtor exceeded the value of the payments proposed.); In re Taylor, 252 B.R. 346, 351–52, 355 (Bankr. E.D. Va. 1999) (Attorneys’ fees awarded to ex-spouse are actually in the nature of alimony, maintenance or support, notwithstanding state appellate court decision that fees could not be awarded as lump-sum spousal support. Plan treated ex-spouse as a general unsecured creditor. Divorce court awarded former spouse attorneys’ fees as “additional lump sum spousal support.” Court of Appeals for Virginia reversed that portion of the award, and on remand, divorce court ordered the debtor to pay attorneys’ fees and costs. “‘Notwithstanding the fact that the issue was brought under § 507(a)(7)(B), the plethora of case law discussing whether debts are “actually in the nature of alimony, maintenance or support” under § 523(a)(5) is applicable and useful precedent in determining whether such debts should receive priority treatment.’ . . . The burden is placed upon the objecting spouse to prove that a debt connected with attorney fees is nondischargeable under § 523(a)(5) because it is ‘actually in the nature of alimony maintenance or support.’” Although state court orders were ambiguous with respect to the intent behind the attorneys’ fee award, fees were “sufficiently connected with the ascertaining of alimony, maintenance, or support” to fall within the priority in § 507(a)(7)(B).); In re Hanes, 248 B.R. 136 (Bankr. W.D. Mo. 2000) (Objection to claim of former spouse is overruled because, after grant of relief from the stay, state court entered judgment for support and the debtor’s failure to appeal state court judgment is fatal to objection to the resulting claim.); In re Allen, 241 B.R. 710 (Bankr. D. Mont. 1999) (Ex-spouse’s claim for medical expenses that arose out of injuries resulting from prepetition assault and battery are not priority under § 507(a)(7)(B) because not included in a decree or reduced to judgment prior to the Chapter 13 filing.); In re Pfalzgraf, 236 B.R. 390, 391–92 (Bankr. E.D. Wis. 1999) (Children of Dennis Pfalzgraf have claims in separate Chapter 13 case filed by Kathleen Pfalzgraf because Dennis and Kathleen’s community property is liable for the claims of Dennis’s children; however, those claims are not entitled to priority in Kathleen’s case because they are not the claims of a former spouse or child of Kathleen’s. Dennis and Kathleen Pfalzgraf filed a joint Chapter 13 case that was not feasible because of priority support claims against Dennis by Dennis’s children from a former marriage. Dennis dismissed his case leaving Kathleen as the sole debtor. “Section 101(10) of Title 11 includes in the definition of ‘creditor’ an ‘entity that has a community claim.’ . . . A ‘community claim’ is one ‘for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is nay such property at the time of commencement of the case.’ . . . Wisconsin marital property is a form of community property. . . . Although Dennis’ former spouse could not under state law enforce the claim against the debtor, Kathleen, the former spouse could enforce the claim against Kathleen’s property, i.e., Kathleen’s marital property interest in Dennis’ earned income . . . . This gives Dennis’ former spouse an allowable claim against Kathleen in Kathleen’s Chapter 13 case, but it does not make Dennis’ child a ‘child of the debtor’ as that term is used in 11 U.S.C. § 507(a)(7). Therefore, [Dennis’s child’s] claim is not entitled to priority status and need not be paid in full as required under 11 U.S.C. § 1322(a)(2).”); In re Crosby, 229 B.R. 679, 681–82 (Bankr. E.D. Va. 1998) (“[T]he language of section 507 parallels that of section 523(a)(5). Because the language of the two sections is identical, if the debt is nondischargeable under section 523(a)(5), it receives priority status under section 507(a)(7). . . . [T]he support agreement entered into for the provision of college education expenses is in the nature of alimony and support and is therefore entitled to priority status.”); In re Dorf, 219 B.R. 498 (Bankr. N.D. Ill. 1998) (Prepetition support arrearages of $33,800 are nondischargeable, entitled to priority and must be paid in full, though without interest under § 1322(a)(2); ongoing postpetition monthly payment of $3,300 is not an allowable claim, but is nondischargeable and must be paid by the debtor from postpetition property.); In re Camacho, 211 B.R. 744, 745–46 (Bankr. D. Nev. 1997) (“[C]hild support obligations must be afforded priority status in a plan. . . . In this case, the plan did not provide for full payment of child support arrears but rather referenced monthly payments as provided for in a stipulation with the D.A. . . . [I]t is unclear who is the holder of the claim . . . . Although the D.A. filed the claim and consents to the stipulation, the debtor must also obtain the consent of his ex-spouse if she retains an interest in the claim.”).

 

25  See §§ 69.1 [ Alimony and Support Exception ] § 58.5  Alimony and Support Exception and 152.2 [ Alimony, Maintenance and Support ] § 88.4  Alimony, Maintenance and Support.

 

26  See §§ 35.10 [ Schedules I and J—Income and Expenditures ] § 36.16  Schedules I and J—Income and Expenditures and 165.1 [ Reasonably Necessary for Maintenance or Support ] § 91.3  Reasonably Necessary for Maintenance or Support.

 

27  See, e.g., In re Dorf, 219 B.R. 498, 501 (Bankr. N.D. Ill. 1998) (Postpetition monthly support payment of $3,300 is not an allowable claim, is nondischargeable and must be paid by the debtor from postpetition property. Debtor had an uncontested claim for $33,800 for prepetition support arrearages and an ongoing monthly maintenance payment of $3,300. “[T]he maintenance payments involved here are better categorized as periodic alimony . . . . [T]hese payments vest only as each payment of $3,300 becomes due and future payments were not vested . . . . [T]he prepetition monthly arrearage of $33,800 . . . is the only claim covered under 11 U.S.C. § 1322(a)(2) . . . . Debtor must pay Nina Dorf’s nondischargeable, priority claim of $33,800 in deferred cash payments over the life of any Chapter 13 Plan, while also remaining current on the post-petition monthly payments of $3,300. Maintenance payments which came due after filing of the bankruptcy case will continue to come due until February 1, [1999], and are therefore not covered by the Chapter 13 Plan. Those payments are due and payable regardless of and outside the bankruptcy. . . . Under 11 U.S.C. § 502(b)(5), a claim excepted from discharge under § 523(a)(5) for an unmatured debt may be disallowed. Section 502(b)(5) also provides that a claim for debt ‘unmatured on the date of filing the petition and that is excepted from discharge under § 523(a)(5)’ is not an allowed claim. By virtue of this section, Congress intended that post-petition alimony, maintenance or support claims ‘are to be paid from the debtor’s postpetition property, because the claims are nondischargeable.’” Debtor can modify the rights of the ex-spouse with respect to the prepetition arrears, but not with respect to the ongoing monthly payment because the ongoing monthly payment is an unmatured debt, not an allowed claim. Because the ongoing monthly payments are scheduled to be completed in two years and the debtor proposes a five-year plan, the debtor cannot use § 1322(b)(5) to stretch out the two remaining years of payments to five years.).

 

28  Pub. L. No. 103-394, § 304(g), 108 Stat. 4106 (1994). It is not obvious where in Title 11 (or elsewhere) this provision will be codified. Some publishers have parked this provisions as a statutory note to 11 U.S.C. § 501.

 

29  Administrative Office of the United States Courts, Form B-281 (12/94).