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DIVORCE AND FAMILY LAW OBLIGATIONS DISCHARGED IN BANKRUPTCY

Can you or your ex-spouse discharge obligations relating to alimony, child support, property maintenance, or property division?

Does the Automatic Stay Prohibit the Continuation of any Pending Divorce Case?

It’s no secret that bankruptcy and divorce are interrelated legal fields. In fact, some divorces may attribute the root cause of the marital collapse to be overwhelming financial debt and/or a job layoff or other significant reduction in income. The pressure on the marriage may become so intense that divorce become inevitable … followed by the inevitable bankruptcy filing. For generations, Americans have experienced divorces; however, never before have so many families faced these setbacks with so much consumer debt.

Without bankruptcy protection, creditors’ legal rights are not directly affected by a divorce. Joint debts owed to creditors survive intact even if one spouse has agreed to pay the other spouse’s bills. Such arrangements do not prohibit creditors from pursuing all available state law remedies against each of the divorcing parties, including foreclosure, garnishment, repossession, liens, or levies. Such a result hardly would be the fresh start one envisions by divorcing a spouse or the fresh start one needs to begin a new life.

Consequently, divorced spouses often consider filing bankruptcy. Smarter spouses and their family law attorneys consider the bankruptcy law implications on divorce settlements in advance --- especially prior to negotiating alimony, maintenance, support, and property issues. Even without advanced planning, ex-spouses turn to bankruptcy attorneys to resolve debt issues.

This webpage identifies some of the bankruptcy issues that need to be considered. Some family law attorneys wrongly think that the 2005 amendments to the US Bankruptcy Code rendered all debts related to divorce excepted from discharge and that no issues remain for judicial interpretation. The contrary is true. There are and will continue to be multiple issues for bankruptcy judges to decide in the family law arena, including the automatic stay, priority, and discharge issues.

Divorce & Family Law Topics

  1. Recent Court Cases
  2. US Bankruptcy Code: Domestic Support Obligations
  3. Discharging Alimony, Maintance, and Support Obligations
  4. Discharging Property Division Obligations
  5. Automatic Stay
  6. Chapter 13 Confirmation Requirements
  7. Priority Payments to Alimony & Support Recipients
  8. Chapter 13 Dismissal Motions

Recent Court Cases

Below are some interesting legal cases involving the interplay between bankruptcy law and divorce law. The cases offered on this website are removed and replaced periodically with newer cases. So I urge you to check back to this website periodically for the latest developments. However, prior cases are available to review after being transferred from this webpage to my blog entitled "Bankruptcy Advice for Family Law Attorneys." You are encouraged to view my family law blog to discover more information about eliminating marital obligations. Visit my Bankruptcy Advice for Family Law Attorneys Blog or contact me to talk to an experienced bankruptcy attorney.

  1. Clair, Griefer LLP v. Prensky, 416 B.R. 406 (Bankr. D.N.J. 2009). Attorney fees owed to a family law attorney were held non-dischargeable despite a chapter 7 bankruptcy discharge.

    A law firm had represented a wife in a divorce proceeding. At the conclusion of the divorce case, the divorce court entered an order awarding the ex-wife $85,000 in attorney fees and directed the debtor/husband to pay the attorney fees directly to the ex-wife’s law firm.

    Debtor/husband did not pay the attorney fees; instead, he filed a chapter 7 bankruptcy case and received a chapter 7 discharge. In response, the law firm filed an adversary proceeding against debtor/husband and sought an order excepting the $85,000 attorney fee debt from discharge. Clair, Griefer LLP v. Prensky, 416 B.R. 406 (Bankr. D.N.J. 2009).

    The issue before the Prensky court was whether attorney fees awarded to debtor’s ex-wife, but payable directly to the ex-wife’s law firm, are dischargeable under §523(a)(15). Debtor/husband asserted that the attorney fee debt was dischargeable because the debt was not a debt owed to a "spouse, former spouse or child" as required for non-dischargeability under §523(a)(15). Debtor/husband urged the court to adopt a "plain language" interpretation of the §523(a)(15) clause "spouse, former spouse, or child" and find the attorney fee debt dischargeable because the debt was payable to the law firm and not to the spouse, former spouse, or child.

    The Prensky court rejected debtor’s argument. The court found that the $85,000 attorney fees were divorce-related debt incurred by debtor in the course of the divorce proceedings between the debtor and ex-wife and were thus non-dischargeable pursuant to §523(a)(15). Key to the court’s decision was the fact that the divorce court awarded attorney fees to the ex-wife, not to the law firm. The court noted that, pursuant to the divorce order, the attorney fee debt was owed to the ex-wife but payment was ordered to be made directly to the ex-wife’s law firm. The court further commented that state law gave the ex-wife the legal right to enforce the award of attorney fees in the event the legal fees were not paid. In short, the court believed that the attorney fee debt was owed to a "spouse, former spouse, or child" as required by §523(a)(15) and that the divorce order directing the payment to be made directly by debtor to the law firm had not changed the fact that the debt was still owed to a "spouse, former spouse, or child."

  2. In Sternberg v. Johnston, 582 F.3d 1114 (9th Cir. 2009), the court sanctioned an ex-wife’s family law attorney for willfully violating the automatic stay. The stay was violated by the attorney continuing to prosecute postpetition a divorce motion for contempt of court that had been filed prior to the bankruptcy case being filed. Debtor was awarded $20,000 for emotional distress and $2,883.20 in actual damages.

    Prior to the bankruptcy case being filed, the divorce court had entered an order requiring debtor/husband to pay spousal support. Debtor/husband failed to make the required payments. The ex-wife, by and through her attorney, filed a motion for contempt of court for the husband’s failure to pay spousal support. Prior to the hearing on the motion, debtor/husband filed for chapter 11 bankruptcy relief.

    At the divorce contempt hearing, debtor/husband informed the court that he had filed bankruptcy. The ex-wife’s attorney stated to the divorce court that the attorney did not know whether continuation of the contempt hearing would violate the stay. Nevertheless, in violation of the automatic stay, the divorce court entered an order finding debtor/husband in contempt of court and granted judgment for the ex-wife in the amount of $87,525. In addition, the divorce court’s order required debtor/husband to be jailed if the payment was not made by a date specified in the order.

    Debtor/husband appealed the order to the state appellate court seeking reversal of the divorce court order. At that appellate hearing the ex-wife’s attorney argued that the divorce court order should be affirmed.

    Debtor/husband also filed an emergency motion before the bankruptcy court to vacate the divorce court order. The bankruptcy court granted the motion and vacated the divorce court order holding debtor/husband in contempt.

    Debtor/husband then filed an adversary proceeding against the ex-wife and the ex-wife’s attorney claiming they had violated the automatic stay. The ex-wife settled the claim against her; but the suit continued against the ex-wife’s attorney. The ex-wife’s attorney argued that the automatic stay may have been violated by the divorce court judge, but the stay was not violated by the ex-wife’s attorney. Alternatively, the ex-wife’s attorney argued that the attorney’s actions did not violate the stay because the US Bankruptcy Code provides an exception to the automatic stay for actions relating to the "establishment or modification of an order for domestic support obligations" or "the collection of a domestic support obligation from property that is not property of the estate." Section 362(b)(2)(A)(B).

    The bankruptcy court rejected the ex-wife’s attorney’s arguments and found that the attorney had willfully violated the automatic stay. The court found that the automatic stay imposed on the ex-wife’s attorney an affirmative duty of compliance with the bankruptcy laws. The court then found that the ex-wife’s attorney had violated the stay by affirmatively opposing debtor/husband’s appeal to the state appellate court seeking reversal of the divorce court’s order.

  3. In re Blackburn, 412 B.R. 710 (Bankr. W.D. Pa 2009). A chapter 7 debtor's ex-wife objected to the discharge of her claim pursuant to Section 523(a)(5) and (a)(15). Because it was clear that the obligation was incurred in connection with a divorce decree, the court ruled that the claim was nondischargeable. The debtor asked the court to reconsider, arguing that the court had discretion to find the debt to be dischargeable. The debtor said he was 50 years old and physically unable to work. He asserted that payment of the debt to his ex-wife would cause him to suffer a substantial hardship. Nevertheless, the court denied the debtor's request for reconsideration, noting that the bankruptcy courts no longer have discretion to allow the discharge of matrimonial obligations in chapter 7 cases.

  4. In re Taub, 413 B.R. 55 (Bankr. E.D.N.Y. 2009). A debtor/wife filed a chapter 11 bankruptcy while she was a party to a pending divorce case in state court. The debtor's estranged husband filed a bankruptcy motion for relief from the automatic stay pursuant to Section 362(d)(1). The estranged husband sought the bankruptcy court order terminating the automatic stay to allow the husband and debtor/wife to procced to conclusion with the divorce action, including the entry of a judgment by the divorce court, with enforcement thereof in the bankruptcy court.

    Not surprisingly, the debtor/wife opposed the motion to lift the automatic stay and argued that the bankruptcy court was the proper forum to resolve the comlex matrimonial issues.

    The bankruptcy court noted that the filing of the bankruptcy petition triggered a stay of any action to commence or continue a judicial, administrative, or other court action to recover a prepetition claim against the debtor/wife and stayed any act to exercise control over property of the bankruptcy estate. The Taub court further noted that the automatic stay was effective immediately upon the filing of the bankruptcy petition without any further action.

    The bankruptcy court stated that the automatic stay does not prevent a debtor/spouse and estranged husband from seeking a dissolution of their marriage. See Section 362(b)(2)(A)(iv). But, the automatic stay in the Taub case did prohibit the estranged husband from proceeding in the divorce court against property of the debtor/wife's estate without first obtaining a bankruptcy court order lifting the automatic stay.

    The bankruptcy court entertained 12 factors prior to ruling that the estranged husband had demonstrated sufficient "cause" supporting the motion to lift the automatic stay. The bankruptcy court granted the motion to lift the automatic stay and held as follows:

    • permitting the divorce court to determine issues including rights of parties in separate or marital property would resolve significant open issues and assist in plan confirmation, so that factor favored finding cause for relief from stay
    • state court had significant expertise in domestic relations matters and was well qualified to determine property entitlements and obligations, so that factor weighed in favor of finding cause for relief from stay; and
    • creditors' rights could be protected by granting limited relief from stay to permit divorce action to proceed only up to entry of judgment, and so that factor weighted in favor of finding cause for relief from stay.

  5. In re McCollum, 415 B.R. 625 (Bankr. M.D.Ga 2009). Debtor was a party to a divorce proceeding in state court prior to filing a chapter 13 bankruptcy case. Debtor was not represented by counsel in the divorce case. Ultimately, the divorce court approved a settlement agreement that created various domestic and non-domestic support obligations, including debtor's obligation to pay the mortgage on the home surrendered to the debtor's ex-spouse and pay the car loan on the car surrendered to the debtor's ex-spouse. Importantly, the settlement agreement indicated that the debtor's duty to pay the mortgage and car loan were "indirect alimony" obligations. Nevertheless, debtor's ex-spouse contacted debtor and requested that debtor NOT list the mortgage and car loan payments as "alimony" expenses on debtor's tax return since debtor's ex-spouse did not intend to claim the mortgage and car payments as "alimony" income.

    Debtor filed a chapter 13 case after the divorce court entered judgment. Thereafter, debtor filed an adversary complaint seeking a determination regarding the dischargeability of divorce related debt. Debtor-plaintiff conceded that the majority of the ongoing payments under the divorce settlement agreement are excepted from discharge as domestic support obligations pursuant to Section 523(a)(5). Nevertheless, debtor-plaintiff filed the adversary proceeding to determine the dischargeability of debtor's obligation to pay the mortgage debt and the car loan, contending that these obligations are non-domestic support obligations pursuant to Section 523(a)(15).

    The McCollum court noted that Section 523(a)(15) applies to debts that do not fall within the definition of a domestic support obligation but were, nevertheless, incurred by the debtor in the course of divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record. For expediency, debts under Section 523(a)(5) are generally referred to as being in the nature of alimony or support, while debts under Section 523(a)(15) are referred to as being in the nature of property division.

    Therefore, the court determined that the key issue to be determined was whether the mortgage and car payment obligations at issue were nondischargeable domestic support obligations within the scope of Section 523(a)(5) or property division obligations within the scope of Section 523(a)(15).

    Whether or not the debts at issue are in the nature of support or property division is a question of federal law that is guided by reference to state law. In making a decision, the court must look beyond any labels used by the parties and instead determine whether at the time of its creation the parties intended the obligation to function as support or alimony. Factors relevant to this inquiry include: the language of the divorce agreement; the relative financial positions of the parties at the time of the agreement; the amount of property division; whether the obligation terminates on the death or remarriage of the beneficiary; the number and frequency of payments; whether the agreement includes a waiver of support rights; the obligation can be modified or enforced in state court; and whether the obligation is treated as support for tax purposes.

    The McCollum court determined that the mortgage and car payment obligations were dischargeable in chapter 13 bankruptcy because these obligations were deemed property division obligations and not alimony or support payment obligations. Citing many factors, the court focused mainly on the following: the parties' relative financial positions at the time of the divorce, the fact that debtor was not represented by counsel and the fact that debtor's ex-spouse contacted debtor and requested that the obligation payments not be classified as "alimony" on IRS tax returns.

  6. Gallo v. Emery, 573 F.3d 433 (7th Cir. 2009). Debtor initiated a chapter 13 bankruptcy case after the completion of state court divorce proceedings. The divorce court had required debtor’s ex-spouse to pay debtor $125,000 under the Illinois circuit court’s dissolution judgment. Debtor’s ex-spouse did not pay the judgment amount prior to debtor filing bankruptcy.

    After filing bankruptcy, debtor filed a motion under §542(b) seeking an order requiring the ex-spouse to pay the chapter 13 bankruptcy trustee the amount that the ex-spouse owed debtor under the Illinois circuit court’s dissolution judgment. The ex-spouse opposed the motion on the ground that the ex-spouse did not have the ability to pay the $125,000. The bankruptcy court rejected the ex-spouse’s argument and entered an order directing the ex-spouse to pay to the trustee the $125,000. The district court affirmed.

    The issue before the 7th Circuit was whether the bankruptcy court erred in ordering the ex-spouse to turnover the $125,000 to the chapter 13 trustee despite the ex-spouse’s alleged inability to pay the $125,000. The ex-spouse argued that the bankruptcy court erred in ordering the turnover because the court failed to establish that the ex-spouse had the ability to pay the payment.

    The 7th Circuit affirmed the bankruptcy court’s order requiring the turnover of funds. The 7th Circuit held that the bankruptcy court had no obligation to ensure the ex-spouse’s ability to pay the judgment before granting the turnover motion. The 7th Circuit distinguished between turnover motions and contempt of court motions; the inability to pay is not defense to a turnover motion, but the inability to pay could be a defense to a later contempt of court motion.

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US Bankruptcy Code: The Creation of the "Domestic Support Obligation"

The US Bankruptcy Code was substantially changed in 2005 after President Bushed signed the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). BAPCPA significantly changed the bankruptcy laws as they relate to divorce proceedings and how family law attorneys practice law.

One of the biggest changes of BAPCPA was the creation of a new category of debt called the "Domestic Support Obligation." This term is found throughout the amended Bankruptcy Code. The term "Domestic Support Obligation" is defined in Section 101(14A) and means a debt that accrues before, on, or after the date the voluntary bankruptcy case was filed, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of the Bankruptcy Code, that is ---

  1. owed to or recoverable by---
  2. (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;
  3. 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;
  4. established or subject to establishment before, on, or after the date of the order for relief in a case under Title 11, by reason of applicable provisions of ---
  5. (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
  6. 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.

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Alimony, Maintenance & Support are Protected from Discharge

Amended Section 523 of the Code identifies certain debts that are "excepted" from the general discharge, meaning that debtors would be obligated still to pay these excepted debts even though these same debtors were granted a general discharge by the court. Particular attention should be paid to the distinction between "alimony, maintenance, & support" obligations on one hand and "property division" obligations on the other hand.

Section 523(a)(5) controls the dischargeability of "alimony, maintenance, & support" obligations, as they are specifically incorporated within the definition of Domestic Support Obligations. Domestic Support Obligations are one of those excepted debts identified in Section 523. Section 523(a)(5) domestic support obligations are excepted from discharge under a chapter 7 bankruptcy and a chapter 13 bankruptcy. See Sections 727(b) and 1328(a)(2).

Chapter 7 debtors will not be discharged from domestic support obligations. Section 727(b)'s inital clause provides the exception. Section 727(b) states "Except as provided in Section 523 of [the Bankruptcy Code], a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date" the bankruptcy was filed.

Chapter 13 debtors will also not be discharged from domestic support obligations. Section 1328(b)'s provision specifically identifies Section 523(a)(5) debts as being excepted from discharge. What's more, a precondition to a chapter 13 general discharge is found in Section 1328(a). This section requires a debtor to certify that all domestic support obligations owed as of the date of the certification have been paid, (including amounts due before the case was filed, but only to the extend provided for by the plan). In addition, a debtor is required to pay all domestic support obligations that have come due AFTER filing the bankruptcy case.

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Discharging Property Division Obligations and other Non-Domestic Support Obligations

Amended Section 523(a)(15) controls the dischargeability of "property division" obligations and other non-domestic support obligations. Section 523(a)(15) is the sister provision of Section 523(a)(5) relating to family law matters. Family law attorneys must consider the distinction between a chapter 7 bankruptcy and a chapter 13 bankruptcy when analyzing the dischargeability of a client or opponent's property division obligations.

First, Section 523(a)(15) provides that the general discharge does not apply "to a spouse, former spouse, or child of the debtor and not of the kind described in [Section 523(a)(5)] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit."

Second, Section 523(a)(15) applies to property division obligations even though such obligations are specifically identified by name. Instead, property division obligations are a subset of those debts "not of the kind described in "Section 523(a)(5) that are incurred by the debtor in the course of a divorce or separation.

Family law attorneys should find the dischargeability issue much easier to understand in the Chapter 7 bankruptcy context. Chapter 7 discharges are identified in Sectin 727. Section 727(b)'s inital clause provides the exception to both "property division" obligations and "alimony, maintenance, and support" obligations. Section 727(b) states "Except as provided in Section 523 of [the Bankruptcy Code], a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date" the bankruptcy was filed. Therefore, there is generally no distinction in chapter 7 regarding different types of family law obligations.

Chapter 13 could not be more different. Family law attorneys must recognize that chapter 13 discharges are divided between the uncommon "hardship" discharge of Section 1328(b) and the common general discharge of Section 1328(a). Chapter 13 debtors who are granted a "hardship" discharge are NOT discharged from debts relating to property division obligations. However, the court's entry of a general chapter 13 bankruptcy discharge after the successful completion of a confirmed chapter 13 plan DOES discharge an individual debtor's debts relating to property division obligations. See Section 1328(a)(2) by omission. Therefore, family law attorneys must consider the potential dischargeability of property division obligations via a chapter 13 discharge when negotiating and drafting settlement agreements and other divorce related documents.

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Automatic Stay Prohibitions Are Limited

Upon the filing of a chapter 7 or 13 bankruptcy petition, an "automatic stay" goes into effect immediately, without the bankruptcy court's action or notice to creditors. See Section 362(a). The stay prohibits all creditors' efforts to pursue collection of a claim against the debtor or against property of the debtor's bankruptcy estate unless excepted. The automatic stay is a statutory stay that is a global injunction against such activity on the part of creditors, including creditor-spouses. No court order or injunction hearing is required to trigger the stay since it becomes effective automatically upon filing the bankruptcy case.

Violation of the automatic stay is a serious offense. Violations can be both unintentional and willful; both could result in sanctions. Courts have assessed fines including costs and legal fees against the offenting parties. Willful violation of the automatic stay could result in punitive damages being awarded pursuant to Section 362(k). In addition to the sanctions, actions taken in violation of the automatic stay are null and void.

Consequently, family law attorneys would be well advised to steer clear of any potential assessment of costs, fees, and punitive damages. These sanctions can be awarded against the family law attorney, the client, or both. Family law attorneys should counsel their clients to engage a bankruptcy attorney to seek an order removing the automatic stay provisions so that the family law attorney can proceed with the domestic relations case.

Care should be taken. The sanctionable actions of the client or family law attorney come from the commission of certain intentional acts that violate the stay --- regardless of whether the person violating the stay had "knowledge" that such actions constitute violations. A sanctionable stay violation exists whenever a creditor or her attorney knows of the existence of a bankruptcy case and then intentionally commit acts that are later deemed violations of the automatic stay. It is the violation of the stay that is sanctionable, not the intent to violate. For example, a creditor can be subect to punitive damages for the creditor's intentional acts even if the creditor believed in good faith that the acts committed were not violations of the automatic stay. The solution is to engage a bankrutpcy attorney whenever there is a doubt.

There are limitations as to the breadth of the stay as it relates to the domestic relations cases. It is not always clear whether the stay applies or doees not apply to a particular activity. The 2005 BAPCPA amendments to the Bankruptcy Code expanded the exceptions to the applicabiity of the automatic stay provisions in domestic relations cases. There are various scenarios involving domestic relations issues where an order from the bankruptcy court may be required or preferable before proceeding with an action in a nonbankruptcy court against the debtor.

Section 362(b) provides exceptions to the broad automatic stay, and some of those exceptions are specifically applicable to domestic relations cases. Section 362(b) states that the filing of the bankruptcy case does NOT operate as a stay as to

  1. the commencement or continuation of a civil action or proceeding
    • (i) for the establishment of paternity;
    • (ii) for the establishmnet or modification of an order for domestic support obligations; or
    • (iii) concerning child custody or visitation;
    • (iv) for 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; or
    • (v) regarding domestic violation;
  2. the collection of a domestic support obligation from property that is not property of the estate;
  3. 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; and
  4. the reporting of overdue support owned by a parent to any consumer reporting agency.

The collection of alimony, maintenance or support is only permitted to the extent that the collection is from property that is not property of the bankruptcy estate. What constitutes "property of the bankruptcy estate" is not a simple determination and thus has been litigated extensively over the years.

Best practices suggest that if there is any doubt that a particular action may or may not violate the autoamtic stay, then the family law attorney should seek the guidance of an experienced bankruptcy attorney. The exceptions to the automatic stay's applicability were expanded by the 2005 amendments, but not eliminated. Thus, any doubt whether a bankruptcy court order is needed to grant relief from the stay should be resolved by obtaining such an order. Better safe than sorry. Stay violations are sanctionable even to the good faith violator, including direct sanctions against the family law attorney for costs, attorney fees, and punative damages. Don't take the risk!

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Chapter 13 Confirmation Requirements

The BAPCPA amendments to the Bankruptcy Code reflected a general intent of Congress to require debtors to continue their obligations relating to alimony, maintenance and support. This intent was expressed in the amendments made to the chapter 13 confirmation process.

Debtors seeking confirmation of their chapter 13 plan must satisfy Section 1325(a)(8)'s requirement that "the debtor has paid all amounts that are required to be paid under a domestic support obligation and that first became payable after the date of the filing of the petition if the debtor is required by a judicial or administrative order, or by staute, to pay such domestic support obligation." Failure to pay all postpetition domestic support obligations could result in the court denying confirmation of a proposed chapter 13 repayment plan.

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Chapter 13 Dismissal Motions

Section 1307(c)(11) was amended to addd as cause for dismissal of a confirmed chapter 13 case the "failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the" bankruptcy case. Therefore the alimony and child support receipients have leverage over a chapter 13 debtor who is in default with said obligations. However, the family law attorney must act strategically. A dismissal motion could be filed; but is that the best strategy? Perhaps or perhaps not.

The family law attorney representing the recipient must consider other issues including the amount of money the receipient is receiving from the chapter 13 trustee in accordance with the chapter 13 plan regarding prepetition obligations. If debtor is subject to a payroll garnishment order entered by the bankruptcy court, then the family law attorney may be better off not dismissing the case because payments are being received for prepetition debt. On the other hand, it may be better to dismiss the bankrutpcy case and seek state law remedies to collect unpaid alimony and/or child support.

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Priority of Payments

In addition to the BAPCPA amendments made to sections 523(a)(5) and (a)(15) addressed above, BAPCPA made other changes to the Bankruptcy Code that impact Americans involved in divorce. Section 507(a) was amended to move Domestic Support Obligations (as defined above) to the first priority repayment position of Section 507(a)(1) so that alimony and child support recipients move nearer to the front of the line in chapter 7 liquidation or chapter 13 distribution cases. Note that despite this amendment, the Code gives a trustee a superpriority over alimony and support claimants for payment of administrative expenses, but only to the extent that the trustee administers assets that benefit those domestic support claimants.

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