§ 57.5     Domestic Support Obligations: Preconfirmation Rights after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 57.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Former spouses and dependents received much attention in BAPCPA. During the preconfirmation period in a Chapter 13 case, the holders of support claims have several new rights and powers.

[2]

BAPCPA fundamentally changed the definition of a support claim. Alimony, maintenance and support debts were redefined as “domestic support obligations” (DSO).1 A DSO includes debt in the nature of alimony, maintenance or support that accrues before or after the petition and includes “interest that accrues on that debt as provided under applicable nonbankruptcy law.”2 It can be owed to or recoverable by a spouse, former spouse, child of the debtor or such child’s parent, guardian or responsible relative or by a governmental unit.3 It can be established or subject to establishment before or after the petition.4

[3]

All DSOs have been elevated to first priority under new § 507(a)(1).5 At confirmation all DSOs must be paid in full through the plan unless the holder consents otherwise.6

[4]

There are new notice requirements in every Chapter 13 case with respect to DSOs that will compel new filings by debtors and much additional work by Chapter 13 trustees. Under new § 1302(b)(6) and (d), the holder of a DSO is provided a special written notice from the Chapter 13 trustee that describes the right to use a state child support enforcement agency for assistance in collecting “child support” during the Chapter 13 case.7 The notice must include the address and telephone number of the child support enforcement agency for the state in which the holder of the DSO resides. This new written notice seems calculated to empower the holders of DSOs to participate more fully in Chapter 13 cases.

[5]

BAPCPA also requires Chapter 13 trustees to send a second written notice to the child support enforcement agency for the state in which each DSO holder resides. Chapter 13 debtors will supply the information necessary to send these two notices by providing the address and telephone number for each DSO holder. Although not specified in the statute, because BAPCPA contemplates that the child support enforcement agency will provide assistance in collecting support during the Chapter 13 case, it makes sense that trustees will send the first set of written notices early in the case. There is a second set of notices by the trustee to the holder of each DSO and to the state child support enforcement agency when the debtor is granted a discharge in the Chapter 13 case.8

[6]

There are new exceptions to the automatic stay that will benefit DSO claimants prior to confirmation in Chapter 13 cases. BAPCPA amended § 362(b)(2) to make explicit that the automatic stay does not apply to the commencement or continuation of a civil action concerning child custody or visitation.9 There is no automatic stay with respect to the dissolution of a marriage, “except to the extent that such proceeding seeks to determine the division of property that is property of the estate.”10 A civil action regarding domestic violence is not subject to the automatic stay after BAPCPA.11

[7]

Of particular importance in Chapter 13 cases, BAPCPA added a new exception to the automatic stay for “the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute.”12 Because most Chapter 13 plans are funded from a debtor’s postpetition wages, the continuing withholding of income for payment of a DSO will interfere with the funding of the plan in some cases. This new exception to the stay does not preclude the possibility that confirmation would affect the withholding of income for payment of a DSO.

[8]

There is a new exception to the automatic stay for the “withholding, suspension or restriction of a driver’s license, a professional or occupational license or a recreational license.”13 This new exception has a DSO connection because of state and federal statutes that erect barriers to licensing based on delinquent support obligations. Filing a Chapter 13 case will not invoke an automatic stay when a licensing restriction results from nonpayment of a DSO.

[9]

The reporting of overdue support to a consumer reporting agency is a new exception to the automatic stay.14 DSO claimants will benefit from the new stay exception for the interception of a tax refund under the Social Security Act or any analogous state law.15 Chapter 13 debtors with medical obligations to a dependent or a former spouse under the Social Security Act are no longer protected by the automatic stay.16

[10]

These new exceptions to the automatic stay offer potential benefit to DSO claimants before confirmation in Chapter 13 cases. After BAPCPA, Chapter 13 debtors must act through the plan confirmation process or otherwise to manage DSO claims because there is much less automatic stay to protect the debtor from postpetition collection. DSOs can disrupt the funding of Chapter 13 plans, making it essential that Chapter 13 debtors deal quickly and meaningfully with the holders of DSO claims.

[11]

If the debtor doesn’t promptly address DSO issues, there are new provisions that doom the Chapter 13 case before confirmation. As amended by BAPCPA, § 1307(c)(11) provides, on request of a party in interest, a Chapter 13 case may be dismissed or converted for “failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.”17 Chapter 13 debtors with continuing obligations to pay domestic support can’t wait for confirmation. The holder of a DSO can move for conversion or dismissal immediately upon the first missed payment after the petition.

[12]

The potential for trouble with DSOs early in the Chapter 13 case burdens counsel to carefully advise debtors. There are several confusing new payments the debtor has to get right in addition to paying the trustee in the first month or two of a Chapter 13 case—including new preconfirmation payments to lessors of personal property18 and to purchase-money-secured lenders.19 A DSO must be paid going forward between the petition and confirmation together with the commencement of payments to the trustee, payments to lessors and payments of adequate protection. This will not be simple for many Chapter 13 debtors. The holders of DSOs are heavily armed to compete for the debtor’s resources and attention during the preconfirmation period.

[13]

DSO claimants have new rights with respect to exemptions and lien avoidance before (or after) confirmation in a Chapter 13 case. BAPCPA amended § 522(c)(1) to provide “notwithstanding any provision of applicable nonbankruptcy law to the contrary,” property exempted in a bankruptcy case “shall be liable for a debt of the kind specified in section 523(a)(5).”20 The debt specified in § 523(a)(5) is any DSO. New § 522(c)(1) seems to expose property a Chapter 13 debtor exempts to liability for a DSO notwithstanding contrary nonbankruptcy law.

[14]

New § 522(c)(1) could allow the holder of a DSO to garnish a larger portion of a Chapter 13 debtor’s wages than would otherwise be allowed by state law. Other property exempted by a Chapter 13 debtor under state law could become liable for payment of a DSO notwithstanding that the exempt property would not be reachable to pay that debt outside bankruptcy. The contours of this puzzling new provision are uncertain, but it certainly appears to benefit the holder of a DSO in a Chapter 13 case.

[15]

The new power to reach exempt property in § 522(c)(1) is complemented by changes to § 522(f). As amended by BAPCPA, a debtor cannot avoid a judicial lien under § 522(f)(1)(A) that secures a DSO.21 A judicial lien on exempt property that secures a DSO cannot be avoided under § 522(f), and new § 522(c)(1), just discussed, seems to forfeit the debtor’s exemption as well. The holder of a DSO secured by a judgment lien not only escapes vulnerability under § 522(f) but also can collect the judgment from property that would be exempt in an action under nonbankruptcy law. The combined effect is a significant penalty for filing a bankruptcy case that benefits the holder of a DSO.

[16]

Finally, the preference defense in § 547(c)(7) was rewritten by BAPCPA to insulate from preference recovery any “bona fide payment of a debt for a domestic support obligation.”22 Preference actions in Chapter 13 cases are rare, but the intent is clear that DSO claimants will not be required to regurgitate preferential preconfirmation payments from the Chapter 13 debtors.


 

1  11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

2  11 U.S.C. § 101(14A).

 

3  11 U.S.C. § 101(14A)(A).

 

4  11 U.S.C. § 101(14A)(C).

 

5  11 U.S.C. § 507(a)(1), discussed in § 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA.

 

6  See 11 U.S.C. § 1322(a)(2), discussed in § 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

7  11 U.S.C. § 1302(b)(6) and (d)(1), discussed in §§ 374.1 [ List of Creditors—DSOs and § 342 Considerations ] § 36.5  List of Creditors—DSOs and § 342 Considerations and 417.1 [ New Noticing Responsibilities ] § 53.16  Noticing Responsibilities.

 

8  See § 417.1 [ New Noticing Responsibilities ] § 53.16  Noticing Responsibilities.

 

9  11 U.S.C. § 362(b)(2)(A)(iii), discussed further in § 430.1 [ Domestic Support Obligation Exception ] § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

10  11 U.S.C. § 362(b)(2)(A)(iv), discussed further in § 430.1 [ Domestic Support Obligation Exception ] § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

11  11 U.S.C. § 362(b)(2)(A)(v).

 

12  11 U.S.C. § 362(b)(2)(C), discussed further in § 430.1 [ Domestic Support Obligation Exception ] § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

13  11 U.S.C. § 362(b)(2)(D), discussed further in § 430.1 [ Domestic Support Obligation Exception ] § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

14  11 U.S.C. § 362(b)(2)(E).

 

15  11 U.S.C. § 362(b)(2)(F), discussed in § 430.1 [ Domestic Support Obligation Exception ] § 58.6  Domestic Support Obligation Exception after BAPCPA.

 

16  11 U.S.C. § 362(b)(2)(G).

 

17  11 U.S.C. § 1307(c)(11), discussed further in § 425.1 [ Dismissal or Conversion before Confirmation ] § 55.4  Preconfirmation Dismissal or Conversion after BAPCPA.

 

18  See 11 U.S.C. § 1326(a)(1)(B), discussed in §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA and 427.1 [ Preconfirmation Rights of Landlords and Lessors ] § 57.4  Preconfirmation Rights of Landlords and Lessors after BAPCPA.

 

19  See 11 U.S.C. § 1326(a)(1)(C), discussed in §§ 401.1 [ Preconfirmation Payments ] § 44.6  Preconfirmation Payments after BAPCPA and 426.1 [ Adequate Protection Rights before Confirmation ] § 57.3  Preconfirmation Adequate Protection Rights after BAPCPA.

 

20  11 U.S.C. § 522(c)(1), discussed in § 407.1 [ New Exemptions and New Exemption Limitations ] § 48.3  Exemptions and Exemption Limitations Added by BAPCPA.

 

21  11 U.S.C. § 522(f)(1)(A), discussed in § 409.1 [ Section 522(f) after BAPCPA: Household Goods Corrupted ] § 49.4  Section 522(f) after BAPCPA: Household Goods Corrupted.

 

22  11 U.S.C. § 547(c)(7), discussed in § 411.1 [ Preferences ] § 50.5  Preferences after BAPCPA.