§ 58.6     Domestic Support Obligation Exception after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 58.6, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

There are new exceptions to the automatic stay with respect to domestic support obligations that will impact many Chapter 13 debtors. BAPCPA redefined and enlarged the familiar alimony, maintenance and support in a new term of art, domestic support obligation (DSO).1 Somewhat oversimplified, a DSO is a debt actually in the nature of alimony, maintenance or support that accrues before or after the petition, that includes interest accruing after the petition and that is owed to a spouse, former spouse or child of the debtor or to a child’s parent, guardian or responsible relative.2 A DSO can be established or “subject to establishment” before or after the petition and can be contained in an agreement, a court order or a determination by a governmental unit.3 This expansive notion of a DSO is then used by BAPCPA in § 362(b) to construct several new and expanded exceptions to the automatic stay.

[2]

First, § 362(b)(2)(A)(iii) clarifies that a Chapter 13 petition does not stay the commencement or continuation of a civil action concerning child custody or visitation.4 There is a new exception to the automatic stay for the “dissolution of a marriage” with an exception to the exception “to the extent that such proceeding seeks to determine the division of property that is property of the estate.”5 This new nest of exceptions allows dissolution of a Chapter 13 debtor’s marriage to proceed so long as the state court does not stray into dividing property among the spouses that is property of the Chapter 13 estate. An ex-spouse or almost ex-spouse would need relief from the stay to seek a property division after the Chapter 13 petition. No stay relief would be necessary to dissolve the marriage itself. In some states, this distinction—between dissolving a marriage and dividing marital property—is well recognized and easily accommodated.

[3]

BAPCPA added a new exception to the automatic stay for the commencement or continuation of a civil action “regarding domestic violence.”6 Domestic violence is an undefined term. Elsewhere, BAPCPA more specifically identified “family violence” by reference to the Family Violence Prevention and Services Act.7 It is not clear whether the new exception to the automatic stay is intended to be broader or narrower than “family violence.”

[4]

Section 362(b)(2)(C) contains a new exception to the automatic stay for “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.”8 Unlike § 362(b)(2)(A)—which specifies the “commencement or continuation of a civil action”—the new exception in § 362(b)(2)(C) is unclear whether the withholding of income that is not subject to the automatic stay must preexist the Chapter 13 petition or whether the exception extends, for example, to a postpetition state court order to withhold income for payment of a DSO. Payment of a DSO “under a judicial or administrative order” makes sense because the definition of DSO specifically mentions support obligations created by order of a court or determination by a governmental unit.9 The statutory definition of DSO does not mention a support obligation created by a statute alone. The new exception to the automatic stay in § 362(b)(2)(C) may be internally inconsistent to the extent it excepts withholding of income for payment of a DSO that is not contained in an agreement, a court order or a determination by a governmental unit.

[5]

Because property of the estate in a Chapter 13 case includes the debtor’s postpetition earnings,10 the new exception to the automatic stay for the withholding of income for payment of a DSO has much significance in Chapter 13 practice. The definition of DSO includes support debts that accrue or are established before or after the Chapter 13 petition. A debtor coming into a Chapter 13 case with a support arrearage or with a regular support payment obligation faces withholding from income to pay that arrearage or to pay that ongoing debt without interference from the automatic stay. Continuation of prepetition withholding from income to pay a DSO will compete with payments to the trustee and any provisions in the plan for paying pre- or postpetition DSO claims. If the new exception is interpreted to permit the holder of a DSO to initiate withholding from the debtor’s income after the petition without violating the stay, then any plan dependent on the debtor’s postpetition income stream could be disrupted by a postpetition state court order to garnish the debtor’s wages. This new exception to the automatic stay has great potential to disrupt the development of Chapter 13 plans in any case in which the debtor owes a DSO.

[6]

The saving grace for debtors could be that new § 362(b)(2)(C) only creates an exception to the automatic stay. It does not prohibit a Chapter 13 plan from providing for payment of pre- and postpetition DSO claims. In fact, DSO claims now have first priority under § 507(a)(1) and must be paid in full to accomplish confirmation unless the holder of the claim consents otherwise.11 A Chapter 13 debtor can still confirm a plan that provides for full payment of pre- and postpetition DSO claims from postpetition income—perhaps to include a provision prohibiting withholding of income for separate payment of a DSO. Before BAPCPA, this sort of injunction was a common provision of income deduction orders sent to a Chapter 13 debtor’s employer.12 The new exception to the automatic stay for the withholding of income to pay a DSO is some incentive for Chapter 13 debtors to embrace an income deduction order that stops all garnishments and withholding early in the Chapter 13 case.

[7]

The new exception to the automatic stay for the withholding of income for payment of a DSO extends to income that is property of the debtor. Property excluded from the Chapter 13 estate by a provision of § 541(b) and property that leaves the estate—for example, by vesting in the debtor at confirmation13—remains vulnerable to withholding of income in favor of a DSO. Trust income protected by a spendthrift provision that is excluded from the Chapter 13 estate by § 541(c)(1) may be subject to garnishment for support under state law and would be unprotected by the automatic stay under new § 362(b)(2)(C). Funds withheld by an employer for contributions to an ERISA-qualified employee benefit plan, deferred compensation plan, tax-deferred annuity or health insurance plan—excluded from the Chapter 13 estate by BAPCPA amendments to § 541(b)(7)—would be unprotected by the automatic stay with respect to withholding for payment of a DSO (to the extent permitted by ERISA or other nonbankruptcy law).

[8]

BAPCPA enacted four new exceptions to the automatic stay that relate to provisions of the Social Security Act. A Chapter 13 petition does not stay:

 
Withholding, suspension or restriction of a driver’s license, professional or occupational license or recreational license specified in § 466(a)(16) of the Social Security Act;
 

 

 
Reporting of overdue support to any consumer reporting agency specified in § 466(a)(7) of the Social Security Act;
 

 

 
Interception of a tax refund specified in §§ 464 and 466(a)(3) of the Social Security Act or under analogous state law; and
 

 

 
Enforcement of a medical obligation specified in Title IV of the Social Security Act.14
 

 

[9]

The references to the Social Security Act are actions permitted by federal law to assist the collection of support when an ex-spouse or dependent has received benefits under the Social Security Act that should have been paid or reimbursed by a parent or responsible person. Withholding licenses, intercepting tax refunds and the like are authorized by the Social Security Act in aid of collecting support and are now not subject to the automatic stay at the commencement of a Chapter 13 case.

[10]

The new exception to the automatic stay for the interception of tax refunds under the Social Security Act or any analogous state law is probably the most significant of these new exceptions in Chapter 13 practice. Absent a confirmed plan that commits tax refunds to the trustee and prohibits intercept by any other creditor, an ex-spouse or governmental agency acting under the Social Security Act will not be subject to the automatic stay during the Chapter 13 case with respect to the interception of a tax refund. The new exception to the automatic stay for the interception of tax refunds for payment of a DSO may collide with the new exception to the automatic stay in § 362(b)(26) for the setoff of an income tax refund by a governmental unit to collect an unpaid tax.15

[11]

As you can see, DSO claimants are much relieved of the automatic stay by BAPCPA in Chapter 13 cases. Without some action by the debtor, income withholding to pay a DSO will continue after the petition and the DSO claimant may continue with state court actions that will disrupt the formulation and consummation of a Chapter 13 plan. The new stay exceptions make it very important for a Chapter 13 debtor’s counsel to act quickly and decisively to deal with a DSO problem through the plan and by the immediate commencement of payments to the trustee.


 

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, 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after 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)(A.

 

3  11 U.S.C. § 101(14A)(C).

 

4  11 U.S.C. § 362(b)(2)(A)(iii).

 

5  11 U.S.C. § 362(b)(2)(A)(iv).

 

6  11 U.S.C. § 362(b)(2)(A)(v).

 

7  See 11 U.S.C. § 707(b)(2)(A)(ii), referencing family violence under § 309 of the Family Violence Prevention and Services Act, Pub. L. No. 98-457, 98 Stat. 1749 (1984) (as amended) codified at 42 U.S.C. § 10421.

 

8  11 U.S.C. § 362(b)(2)(C).

 

9  See 11 U.S.C. § 101(14A)(C)(ii), (iii).

 

10  See 11 U.S.C. § 1306(a)(2), discussed in § 46.1 [ Postpetition Earnings ] § 46.3  Postpetition Earnings.

 

11  See 11 U.S.C. §§ 507(a)(1) and 1322(a)(2), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA.

 

12  See § 248.1 [ Order to Debtor’s Employer ] § 125.1  Order to Debtor’s Employer.

 

13  See 11 U.S.C. § 1327(b), discussed in § 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.

 

14  11 U.S.C. § 362(b)(2)(D), (E), (F), (G).

 

15  See 11 U.S.C. § 362(b)(26), discussed in § 434.1 [ (Rebuttable) Presumption of Lack of Good Faith ] § 61.3  (Rebuttable) Presumption of Lack of Good Faith.