When BAPCPA was enacted, a new concept in bankruptcy law emerged: “domestic support obligations” or “DSOs”. Child support, alimony and other support obligations received specific consideration in bankruptcy, and in particular, chapter 13. If you are looking at the potential of a bankruptcy filing, there’s something you need to know about how domestic support obligations and chapter 13 work together.
When I meet people who are considering chapter 13, it’s not surprising that they have a lot of debt. And at times, that debt might also include child support or other spousal support payments that have not been made or are delinquent. There are many reasons why: income changed, expenses changed and those obligations fell behind. But without a court order, none of these circumstances relieve a debtor’s liability.
Domestic Support Obligations Defined
Under Section 101(14A) of the Bankruptcy Code, a “domestic support obligation” is defined as
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.
Keeping this definition in mind, are important considerations for people thinking about chapter 13.
If the debtor fails to pay DSOs which are due after the date of the filing of petition, the US Trustee or a “party in interest” may move to convert the case to chapter 7 or dismiss the case all together. (Section 1322(b)(11)) Examples of the “party in interest” are the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative.
For example, if the debtor is obligated to pay $200 every week (as per court order or separation agreement) for child support, those payments must be timely made once the case is filed. In chapter 13, this amount paid to a DSO cannot be considered part of the disposable income needed to fund a plan (Sections 1325(b)(1)(A) and (B), 1325(b)(2)(A)(i)). And perhaps most importantly, a debtor cannot receive a discharge under chapter 13 unless they have certified that they have paid their DSO’s as required. (Section 1328(a)).
If the amount of the regular obligation is too high for the debtor to manage, then it is important for the debtor to consider speaking to bankruptcy and their family law counsel about the potential of obtaining a modification of the support order (assuming that there is an order). Consider this an extra step that any debtor with DSO’s will have to take before filing. And also remember that the automatic stay does not operate as a stay of the establishment or modification of a DSO order. (Section 362(b)(2)(A)(ii)).
If you are contemplating the option of chapter 13, and you are subject to domestic support obligations, you should confer with counsel to discuss your rights as well as your obligations.
Storm Preparation is a weekly series appearing on Wednesdays and offers tips and information to people who think they may need bankruptcy protection in the future. Questions, comments or suggestions can be addressed to info@mcleodlawoffices.com.
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- Filing Bankruptcy: Timing can be Everything in Chapter 13
Tags: Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, Domestic Support Obligations, Storm Preparation