Cite as: Keith M. Lundin, Lundin On Chapter 13, § 8.16, at ¶ ____, LundinOnChapter13.com (last visited __________).
There are important points of interaction between federal bankruptcy law and state laws of domestic relations. The property rights of divorced or divorcing spouses and rights in the future income of a former spouse or parent are the subject of state domestic relations laws and the subject of federal bankruptcy law. Conflicts between federal bankruptcy law and state laws of domestic relations are inevitable.
A divorced or divorcing debtor in need of bankruptcy relief has many incentives to proceed in Chapter 13 as a strategy for managing the financial aspects of a domestic relations problem. The determination whether an obligation arising out of a divorce is a nondischargeable domestic support obligation can be made in Chapter 13.1 Of particular importance, “nonsupport” debts that arise from property division—addressed in 11 U.S.C. § 523(a)(15)—are not dischargeable in Chapter 7 cases but can be managed and discharged in Chapter 13.2 Using Chapter 13 as the platform for resolution of support and property division questions has the advantage that the debtor realizes financial stability while the nature of the obligation is determined.
If the debtor is in arrears on a domestic support obligation, Chapter 13 can be of much assistance.3 In some jurisdictions, it is common for Chapter 13 plans to cure defaults in payments to a former spouse for alimony, child support and the like. The resulting stability and reliability is in the best interests of the former spouse, especially if the plan is funded by deduction from the debtor’s paycheck. This is a more reliable way of ensuring payments to a former spouse than voluntary payments by the debtor. When a domestic support arrearage has developed and the debtor’s income is limited, making up that arrearage over time through a Chapter 13 plan can be the best of bad alternatives for curing the default. A minority of jurisdictions resisted the use of Chapter 13 to cure alimony or support arrearages, but this position became untenable by the mid-1990s.4 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)5 added 11 U.S.C. § 1328(a)(8), which conditions confirmation that the debtor must be current in domestic support obligations that accrue after the petition.6
When former spouses must sell property as part of a separation or divorce, Chapter 13 can provide a protected environment for the sale. This can be especially useful when the former spouses’ financial conditions are much disrupted by the divorce itself. During the time of turmoil immediate to a divorce, the spouses often are in arrears to several creditors, have the added expense of the divorce and are uncertain about who will be responsible for which debts. A Chapter 13 case can provide a breathing period in which to sort out such things without the additional pressure of creditor collection actions.
1 See 11 U.S.C. §§ 101(12A) and 523(a)(5), discussed in § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994, § 158.1 Alimony, Maintenance or Support and § 159.5 Domestic Support Obligations: § 523(a)(5).
3 See § 58.5 Alimony and Support Exception (automatic stay and support collection in Chapter 13 cases); § 88.4 Alimony, Maintenance and Support (separate classification of support claims); § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994 and § 138.1 Alimony, Maintenance and Support in Cases Filed before October 22, 1994 (support claims questions); § 113.3 Domestic Support Obligations Must Be Current (necessity to be current on postpetition domestic support obligations); § 136.21 Domestic Support Obligations after BAPCPA (priority treatment of domestic support obligations); and § 159.5 Domestic Support Obligations: § 523(a)(5) (nondischargeability of domestic support obligations).
4 See, e.g., Caswell v. Lang, 757 F.2d 608 (4th Cir. Mar. 19, 1985) (Sprouse, Ervin, Dupree) (Chapter 13 debtor is forbidden to include child support arrearages in a Chapter 13 plan.). Accord Pacana v. Pacana-Siler (In re Pacana), 125 B.R. 19 (B.A.P. 9th Cir. Mar. 29, 1991) (Volinn, Ashland, Jones); McCray v. McCray, 62 B.R. 11 (Bankr. D. Colo. July 1, 1986) (Brumbaugh). This position was indefensible prior to the 1994 amendments. See § 88.4 Alimony, Maintenance and Support and § 138.1 Alimony, Maintenance and Support in Cases Filed before October 22, 1994. In 1994, Congress further demonstrated that it contemplated the management of alimony, maintenance and support claims in bankruptcy cases generally and through Chapter 13 plans by amending the priorities in § 507(a) to elevate claims for alimony, maintenance or support to seventh position. See 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). One effect of the 1994 amendments to § 507(a)(7) is that most debts for alimony, maintenance or support are entitled to full payment as a condition of confirmation in Chapter 13 cases filed after October 22, 1994. See 11 U.S.C. § 1322(a)(2), discussed in § 73.1 Plan Must Provide Full Payment, § 73.2 What Claims Are Priority Claims?, § 136.1 Treatment of Priority Claims and § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.
5 Pub. L. No. 109-8, 119 Stat. 23 (2005).
6 See § 113.3 Domestic Support Obligations Must Be Current. Prior to discharge at completion of plan payments, the debtor must certify payment of domestic support obligations. See 11 U.S.C. § 1328(a), discussed in § 156.4 Domestic Support Obligation Certification.