The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created sweeping changes in the way debtors could seek bankruptcy protection. Among the changes, those seeking a Chapter 7 discharge must complete a means test to determine eligibility based on income and expenses. Filers must now go through credit counseling and participate in a debt management course as part of the bankruptcy process. Debtors and their attorneys must sign a variety of disclosures, under penalty of perjury, indicating that they reviewed all pleadings and schedules filed with their bankruptcy case.
But, perhaps the most important change involves the treatment of domestic support obligations (DSOs) in bankruptcy. The amendments addressed the loophole related to support claims, making any domestic support obligation becomes a first priority claim.
Under Section 507(a)(1)(A) of the revised bankruptcy code, debts qualifying as support obligations are non-dischargeable in bankruptcy. Essentially, debts owed (or recoverable) by a former spouse in the nature of alimony, maintenance or support established pursuant to a court order cannot be eliminated through a bankruptcy filing and must be paid in full.
Prior to the enactment of the BAPCPA, former spouses who filed bankruptcy could include support obligations with property settlement agreements in an effort to eliminate their responsibility for maintenance or child support.
Understanding Domestic Support Obligations
There is still considerable debate over what qualifies as “support” for purposes of non-dischargeability. Divorce and bankruptcy can present complex legal problems. Bankruptcy courts are consistently seeing a problem with determining whether a debt is support or not when the language in a divorce decree does not clearly distinguish between property settlements and support obligations. The most common example of this dispute is whether payment of one spouse’s attorneys’ fees by the other spouse in a divorce proceeding can be classified as spousal support.
To make the determination regarding whether an obligation to pay is or is not support, courts will look to the actual language in the decree, the parties’ respective financial positions, each spouse’s ability to earn an income, how other assets and debts were divided and any other clarifying language to infer the parties’ intent.
The Effect of Bankruptcy on Divorce Proceedings
If your ex files for bankruptcy soon after your decree is issued, or during divorce proceedings, the filing will not affect your rights to receive court ordered payments, including temporary support. The automatic stay provisions that protect debtors from collection actions on non-priority debts do not apply to support matters. Also, a debtor will not receive a discharge upon completing a bankruptcy plan unless all support obligations are current.
While support obligations are protected through bankruptcy, it is important to have them clearly defined. After all, marital debts assigned through a property division order may be discharged. Nevertheless, you can seek protection just like any other creditor by filing an adversary petition or a proof of claim. If you have questions regarding your rights and options, an experienced bankruptcy attorney can help.