§ 159.5 — Domestic Support Obligations: § 523(a)(5)

Revised: March 29, 2006

[1]

The exception to discharge in § 1328(a) for debts of the kind specified in § 523(a)(5) was not changed by BAPCPA, but the new definition of domestic support obligation (DSO) in § 101(14A) enlarged the universe of debts that are nondischargeable under § 523(a)(5). DSO is defined by new § 101(14A) as follows:

(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.1
[2]

BAPCPA enlarged the debts that are nondischargeable under §§ 523(a)(5) and 1328(a) in these particulars:

 1.
A DSO can accrue before or after the petition in a Chapter 13 case. Under prior law, only prepetition debts in the nature of alimony, maintenance or support fell within the exception to discharge in § 523(a)(5).
 

 

 2.
A nondischargeable DSO includes interest that accrues on “that debt” as provided under applicable nonbankruptcy law. Under pre-BAPCPA law, interest on a prepetition debt in the nature of alimony, maintenance or support shared the nondischargeable character of the debt, but § 101(14A) enlarges that concept to define postpetition interest as part of the DSO claim itself. The “notwithstanding any other provision of this title” in § 101(14A) seems targeted to intercept § 502(b)(2) and (5), which would otherwise disallow any claim for unmatured interest on a nondischargeable DSO.2 It is not completely clear from § 101(14A) whether postpetition interest on a nondischargeable DSO is an allowable claim, but the “notwithstanding” in § 101(14A) supports an argument that it is an allowable part of the claim.
 

 

 3.
DSO is more broadly defined by § 101(14A) to include debts in the nature of alimony, maintenance or support that are “owed to or recoverable by” a spouse, former spouse, child, child’s parent, legal guardian, responsible relative or a governmental unit.3 Under prior law, only debts to a spouse, former spouse or child of the debtor were specifically mentioned in § 523(a)(5).
 

 

 4.
Under new § 101(14A), a DSO is nondischargeable without regard to whether the debt is “expressly” designated to be in the nature of alimony, maintenance or support.4 Under prior law, § 523(a)(5) ambiguously provided that a debt for alimony, maintenance and support was not excepted from discharge to the extent that the debt was designated as alimony, maintenance or support “unless” such liability was “actually” in the nature of alimony, maintenance or support. The tangled logic in the former law is clarified somewhat in new § 101(14A).
 

 

 5.
Under new § 101(14A), a nondischargeable DSO can be “established” or can be “subject to establishment” before or after the petition by reason of a separation agreement, divorce decree, property settlement agreement, court order or determination in accordance with nonbankruptcy law by a governmental unit. Under prior law, § 523(a)(5) required that the debt be “in connection with” a separation agreement, a divorce decree or other order of a court of record, determination in accordance with a state or territorial law by a governmental unit or property settlement agreement. The sources allowed by BAPCPA seem to be more or less coextensive with those under prior law, but the possibility that a nondischargeable DSO is “subject to establishment” is a whole new concept with BAPCPA. The limits on “subject to establishment” could be tricky.
 

 

 6.
A DSO loses its nondischargeable character under § 101(14A)(D) if it is assigned to a nongovernmental unit unless it is assigned voluntarily “for the purposes of collecting the debt.” Under prior law, a debt in the nature of alimony, maintenance or support lost its nondischargeable character if it was assigned to another entity, voluntarily, by operation of law, or otherwise with an exception to the exception that debts assigned pursuant to the Social Security Act or assigned to a federal or state government remained nondischargeable. BAPCPA clarifies that DSOs assigned to any governmental entity without regard to how or why retain their nondischargeable character and DSOs assigned voluntarily to a nongovernmental entity are nondischargeable if assigned for the purpose of collecting the debt. BAPCPA thus enlarged the class of debts in the nature of alimony, maintenance or support that are nondischargeable notwithstanding assignment to another entity.
 

 

[3]

These expansions of the debts that are nondischargeable under § 523(a)(5) will enlarge the class of debts that will be nondischargeable under § 1328(a) at the completion of payments under a Chapter 13 plan.

[4]

BAPCPA also reordered the priorities in § 507(a)(7) to provide a first priority for allowed unsecured claims for DSOs.5 The net effect of the BAPCPA changes to § 507(a) and the addition of new § 101(14A) is that unsecured debts that meet the expanded definition of DSO are both nondischargeable and entitled to first priority and full payment through a Chapter 13 plan.

[5]

A remaining question is the payment of postpetition interest with respect to a DSO. The problem involves reading together §§ 1328(a), 523(a)(5), 101(14A), 502(b)(2) and (5), 507(a) and 1322(b)(10). The big picture is that a DSO debt as defined by BAPCPA is nondischargeable in a Chapter 13 case, is entitled to priority and full payment through the plan and, as defined in § 101(14A), includes interest that accrues after the petition in a Chapter 13 case. Normally, interest that matures during a Chapter 13 case on an unsecured nondischargeable domestic debt is not allowable under § 502(b)(2) and (5). But what does it mean that “unmatured interest” on a DSO is not allowed under § 502(b)(2) and (5) when interest that accrues after the petition is included in the DSO debt itself by § 101(14A)? Does the disallowance of unmatured interest by § 502(b)(2) and (5) have any meaning in this context given that interest, as it “matures” after the petition on a DSO debt, becomes part of the DSO debt itself under § 101(14A) “notwithstanding” any other provision of title 11?

[6]

The DSO debt is a priority debt under § 507(a)(1) and ordinarily would be paid in full through the Chapter 13 plan consistent with § 1322(a)(2) but without postpetition interest. Perhaps it can be said that postpetition interest as it accrues on a DSO becomes part of the DSO debt itself under § 101(14A), and thus the accruing postpetition interest is a priority debt that must be paid in full through the confirmed plan consistent with § 1322(a)(2). This construction would allow Chapter 13 debtors to separately classify a DSO for payment in full and would include in the DSO debt all interest that accrued under nonbankruptcy law after the petition.

[7]

Section 1322(b)(10), as amended by BAPCPA, states that a Chapter 13 plan may “provide for the payment of interest accruing after the date of the filing of the petition on unsecured claims that are nondischargeable under § 1328(a)” but only to the extent that the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims.6 There is no reference to or exception for DSOs in new § 1322(b)(10). This new section could be interpreted to preclude the payment of postpetition interest on account of a nondischargeable DSO debt unless the Chapter 13 plan provides full payment of all allowed claims.

[8]

But the predicate to § 1322(b) is that all of its subsections are “subject to subsection[ ] (a).”7 It is subparagraph (2) in “subsection[ ] (a)” that mandates that a Chapter 13 plan provide for full payment of all claims entitled to priority under § 507. It could be concluded that the payment of postpetition interest as part of a DSO claim under § 101(14A) is a mandatory provision of a Chapter 13 plan under § 1322(a)(2) that is an exception to the limitation in new § 1322(b)(10) that postpetition interest can be paid on account of a nondischargeable debt only if the Chapter 13 debtor has disposable income sufficient to pay all allowed claims in full.

[9]

The argument seems to come full cycle to a conclusion that a nondischargeable debt for a DSO must be paid in full and can be separately classified for payment in full with postpetition interest through a Chapter 13 plan. Other interpretations are possible, but this interpretation gets maximum payment to the holders of support obligations while protecting Chapter 13 debtors from potentially large nondischargeable claims for accruing postpetition interest.

[10]

Because postpetition interest accrues on a DSO under § 101(14A) consistent with nonbankruptcy law entitlements, the holders of DSO claims must file accurate proofs of claim that include provisions for postpetition interest at the appropriate state law rate. Many DSO claims are filed in Chapter 13 cases by governmental entities, and the state child support agencies that file such claims need to be educated to include appropriate postpetition interest demands in their proofs of claims in Chapter 13 cases. The new notices that Chapter 13 trustees are required to give to the holders of DSO debt and to the state child support agencies under § 1302 could prove to be helpful in raising the quantity and quality of DSO claims filed in Chapter 13 cases.

[11]

In addition to the expanded definition of DSO in § 101(14A), and the elevated priority status of DSOs in § 507(a) and the nondischargeable status of all DSOs at the completion of payments in a Chapter 13 plan under § 1328(a), don’t forget that a Chapter 13 debtor will not get a discharge at the completion of payments under the plan unless the debtor certifies that all DSOs due during the Chapter 13 case, including amounts due before the petition to the extent provided for by the plan, have been paid.8 This certification requirement means that DSOs accruing before and after the Chapter 13 petition have to be current at the time of certification. “Amounts payable” for purposes of the new certification in § 1328(a) would certainly include interest on a DSO accruing after the petition—further supporting the view that a Chapter 13 debtor after BAPCPA has to be able to pay accruing postpetition interest through the Chapter 13 plan.

[12]

And there is no suggestion in § 1328(a) or elsewhere that the certification is limited to payments through the Chapter 13 trustee. In other words, whether the DSO is being paid directly by the debtor to the claim holder or being paid through the Chapter 13 trustee, the certification requirement in § 1328(a) applies as a condition for discharge.

[13]

It is important to note that only DSOs defined in § 101(14A) and referenced in § 523(a)(5) are nondischargeable at the completion of payments under a Chapter 13 plan under § 1328(a). Debts under § 523(a)(15)—debts to a spouse, former spouse or child incurred in the course of a divorce or separation but not in the nature alimony, maintenance or support as described in § 523(a)(5)—are dischargeable at the completion of payments under a Chapter 13 plan. This vestige of the pre-BAPCPA “super” discharge is a reason why some debtors eligible for Chapter 7 or Chapter 13 should choose Chapter 13—to manage a “nonsupport” domestic obligation that would otherwise be nondischargeable under § 523(a)(15). That BAPCPA eliminated the balancing test in former § 523(a)(15) makes Chapter 13 slightly more attractive than before BAPCPA for individual debtors with debts that might be nondischargeable under § 523(a)(15) in a Chapter 7 case.

[14]

BAPCPA did not change procedure or jurisdiction with respect to the determination of dischargeability under § 523(a)(5). There is no time limit within which a complaint to determine dischargeability under § 523(a)(5) (as incorporated into § 1328(a)) must be brought, and there is concurrent jurisdiction with state courts to make that dischargeability determination. Because all allowed unsecured DSOs are entitled to first priority under § 507(a)(1), a determination that a debt is not entitled to priority under § 507(a)(1) could have preclusive effects with respect to the nondischargeability of that debt. Because priority determinations typically occur early in a Chapter 13 case, the holders of DSO debts must be diligent to demand priority status to protect the nondischargeability of the debt.


 

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 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA.

 

2  See below in this section.

 

3  11 U.S.C. § 101(14A)(A)(i), (ii).

 

4  11 U.S.C. § 101(14A)(B).

 

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  11 U.S.C. § 1322(b)(10), discussed in § 459.1 [ Postpetition Interest on Nondischargeable Claims: § 1322(b)(10) ] § 88.3  Postpetition Interest on Nondischargeable Claims after BAPCPA: § 1322(b)(10).

 

7  11 U.S.C. § 1322(b).

 

8  11 U.S.C. § 1328(a), discussed in § 545.1 [ New Domestic Support Obligation Certification ] § 156.4  Domestic Support Obligation Certification.