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Presenting a live 90-minute webinar with interactive Q&A

Divorce: When a Spouse or

Former Spouse Files Bankruptcy Understanding the Impact of Bankruptcy on

Domestic Support Obligations, Property Settlements, and Taxes

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, APRIL 25, 2017

Daniel L. Britt, Jr., Britt & Burroughs, Marietta, Ga.

Ian M. Falcone, Attorney, The Falcone Law Firm, Marietta, Ga.

Shayna M. Steinfeld, Attorney, Steinfeld & Steinfeld, Atlanta

Stephen Burroughs, Member, Britt and Burroughs, Marietta, Ga.

Ian M. Falcone

THE FALCONE LAW FIRM, P.C.

363 Lawrence Street Marietta, GA 30060

(770) 426-9359

www.falconefirm.com [email protected]

1

DIVORCE: WHEN A SPOUSE OR FORMER SPOUSE FILES BANKRUPTCY

Strafford Publications, Inc.

Tuesday, April 25, 2017

Ian M. Falcone

INTRODUCTION

Most family law practitioners know very little about bankruptcy law and do their best to avoid

anything having to do with that topic. Oddly, bankruptcy lawyers often step into the middle of a

family law case without even knowing what they have done. It will not surprise anyone that

clients are often not forthcoming, but failing to ask certain questions can be very problematic.

If your bankruptcy client has been involved in a recent family law dispute, a “domestic relations

financial affidavit” (often called a DRFA) has probably been filed with the Court. This

document lists income and expenses. Failure to match your schedules to these documents can

be fatal to at least one of the cases and, more importantly, could lead to allegations of bankruptcy

fraud.

Additionally, failure to review a settlement agreement or final court order entered in the family

law case can lead to surprises. A simple, and absolutely normal part of the divorce process, is to

divide property (and liabilities). Unfortunately, these property divisions, while equitable, if

completed within two years of the bankruptcy filing, may not conform with Sections 547 or 548

of the Bankruptcy Code and can lead to allegations of fraudulent or otherwise voidable transfers.

Simply put, the intersection of these two areas of law can be disastrous if not properly reviewed

and, in many cases, coordinated.

DOCUMENTS

Bankruptcy lawyers are familiar with bankruptcy forms. Divorce lawyers are familiar with

divorce forms. However, if your client has recently been divorced or been through a support

modification, or will be involved in one of these cases soon, you need to be familiar with the

forms used in both courts.

On the bankruptcy side, you are familiar with Schedule B (list of assets), Schedule I (income)

and Schedule J (expenses). In the divorce court, parties typically submit a financial affidavit

that combines these concepts (see Exhibit A for an example of Georgia’s Domestic Relation’s

Financial Affidavit). If a financial affidavit has been signed, notarized and filed with the Court,

it should be carefully reviewed and used in preparing the bankruptcy paperwork.

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These documents are often submitted at the early stages of a divorce case when expenses are

unknown or are estimated. Nonetheless, they contain statements regarding income and the value

of assets. It would be awkward, to say the least, for your client to have to explain why he

reported his income as one figure to the divorce court and another to the bankruptcy court.

Another document that can be helpful is the “child support worksheet.” This document may

include child care expenses and insurance costs that should be matched to the bankruptcy forms.

CAN DIVORCE BE HELPFUL TO A BANKRUPTCY CLIENT?

First, let me be clear, never encourage a client to get divorced to enhance their ability to file for

bankruptcy protection. Additionally, never encourage a client to sign a settlement agreement

simply because it makes them eligible for a certain type of bankruptcy protection.1 However,

there are times when a client needs to look at their situation from a much broader perspective.

This requires serious coordination between divorce and bankruptcy counsel.

For example, if a potential debtor would qualify for Chapter 7 if they were obligated to pay

alimony and that alimony was warranted under the circumstances in the divorce and is likely to

be ordered by the Court, it may not make sense to fight the alimony claim. The same analysis

applies to child support and property division issues. Again, you cannot encourage your client to

commit fraud, but you can recognize the advantages of certain decisions.

THE AUTOMATIC STAY

A. When does it apply?

1. The stay is automatic upon the filing of a bankruptcy petition. Notice is not necessary

(11 USCS § 362 automatic stay is in force from time petition in bankruptcy is filed

and fact that creditor had not received notice of filing is irrelevant. In re Garcia

(1982, ND Ill) 23 BR 266, 9 BCD 905. Because automatic stay becomes effective

upon filing of Chapter 13 bankruptcy petition under 11 USCS § 362(a), no formal

notice is required. Richard v Chicago (1987, ND Ill) 80 BR 451 (criticized in In re

Shah (2001, BC ED Pa) 46 CBC2d 101). Automatic stay is effective upon filing of

Chapter 13 debtor's petition and no formal notice is required. In re Davis (1987, BC

ND Ohio) 74 BR 406, 16 BCD 40.)

2. Sanctions are not imposed unless the violation was willful (11 USC 362(k) (1) Except

as provided in paragraph (2), an individual injured by any willful violation of a stay

1 See sections 547 and 548 for an explanation of how divorce transfers can result in preference

claims for the trustee.

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provided by this section shall recover actual damages, including costs and attorneys'

fees, and, in appropriate circumstances, may recover punitive damages. (2) If such

violation is based on an action taken by an entity in the good faith belief that

subsection (h) applies to the debtor, the recovery under paragraph (1) of this

subsection against such entity shall be limited to actual damages)

3. There are a few exceptions to the stay being automatic. If there has been a previous

case filed within one year of the current filing, the stay is only good for thirty (30)

days (11 U.S.C. 362(c)(3)), unless the Court extends the stay for cause (which is

liberally granted). If two or more cases have been filed within the prior year, there is

no stay created upon filing. The debtor must actually file a motion to impose the stay.

Be aware, however, that our local judges have taken the position that although the

stay may dissolve after 30 days (or not have been created in the first place), a creditor

cannot take action against an estate asset. (In re Ajaka 370 B.R. 426 (NDGA, 2007

Judge Murphy) In the instant case, it appears that all the property for which Debtor

seeks protection from the automatic stay is property of the estate. As §362(c)(3) does

not apply to terminate the stay as to property of the estate, relief under that

Bankruptcy Code section is unnecessary. (emphasis added))

B. What does it prevent?

1. In its most general application, the automatic stay prevents “the commencement or

continuation, including the issuance or employment of process, of a judicial,

administrative, or other action or proceeding against the debtor that was or could have

been commenced before the commencement of the case under this title, or to recover

a claim against the debtor that arose before the commencement of the case. 11 U.S.C

362 (a)(1). However, the stay actually protects against much more.

2. The stay also protects against “the enforcement against the debtor or the debtor’s

property of a judgment obtained before the commencement of the case” (11 USC

362(a)(2)), “any act to obtain possession of property of or from the debtor’s

bankruptcy estate, or to exercise control over property of the estate” (11 USC

362(a)(3)), and “any act to create, perfect, or enforce any lien against the property of

the debtor’s bankruptcy estate” (11 USC 362(a)(4)).

3. As you may have noticed, many of the protections focus on actions against the

“estate.” It is important to understand that the definition of the “estate” changes from

bankruptcy chapter to bankruptcy chapter.

a. 11 U.S.C. 541 provides the basic definition of the estate for Chapter 7 cases.

(The commencement of a case under section 301, 302, or 303 of this title

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creates an estate. Such estate is comprised of all the following property,

wherever located and by whomever held: (1) Except as provided in

subsections (b) and (c)(2) of this section, all legal or equitable interests of the

debtor in property as of the commencement of the case. (3) Any interest in

property that the trustee recovers under section 329(b), 363(n), 543, 550, 553,

or 723 of this title. (5) Any interest in property that would have been property

of the estate if such interest had been an interest of the debtor on the date of

the filing of the petition, and that the debtor acquires or becomes entitled to

acquire within 180 days after such date—(A) by bequest, devise, or

inheritance;(B) as a result of a property settlement agreement with the

debtor's spouse, or of an interlocutory or final divorce decree; or (C) as a

beneficiary of a life insurance policy or of a death benefit plan. 11 USC 541

(selectively edited).

b. 11 U.S.C. 1306 expands that definition for the purpose of Chapter 13. ((a)

Property of the estate includes, in addition to the property specified in section

541 of this title—(1) all property of the kind specified in such section that the

debtor acquires after the commencement of the case but before the case is

closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this

title, whichever occurs first; and (2) earnings from services performed by the

debtor after the commencement of the case but before the case is closed,

dismissed, or converted to a case under chapter 7, 11, or 12 of this title,

whichever occurs first.) A similar provision can be found at 11 U.S.C. 1115

for Chapter 11 cases. ((a) In a case in which the debtor is an individual,

property of the estate includes, in addition to the property specified in section

541—(1) all property of the kind specified in section 541 that the debtor

acquires after the commencement of the case but before the case is closed,

dismissed, or converted to a case under chapter 7, 12, or 13, whichever

occurs first; and (2) earnings from services performed by the debtor after the

commencement of the case but before the case is closed, dismissed, or

converted to a case under chapter 7, 12, or 13, whichever occurs first.)

c. The easiest way to think of the definition is that Chapter 7 is a snapshot and

Chapter 13 and 11 are motion pictures. On the date of filing imagine taking a

photograph of all of the debtor’s assets. In a Chapter 7 case, the assets are

fixed at the time of filing. The asset either existed or did not exist at the time

of filing. Post-petition income was not in the photograph at the time of filing

and therefore is not part of the estate in a Chapter 7 case. However, Chapter

13 and Chapter 11 are more like movies. The camera follows the action

during the case. As a result, post-petition income and other assets that are

acquired after filing become part of the estate.

C. Exceptions to the stay:

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1. The following actions are NOT prohibited by the automatic stay.

a. sales or transfers of property initiated by the debtor (See In re Schwartz, 954

F. 2d 569). This would indicate that a debtor can transfer property that is not

property of the estate without relief from the stay. However, because it is

often difficult to determine whether an asset is part of the estate, it is always

best to seek and obtain relief from the stay before completing an asset transfer.

b. the collection of a domestic support obligation from property that is not

property of the estate (11 USC 362(b)(2)(B)). If a contempt action is filed

against a debtor in a Chapter 7 case, in theory, without lifting the stay, the

Movant could proceed to collect solely from post-petition income since it is

not part of the estate (this would not be true in a Chapter 11 or Chapter 13

case since post-petition earnings would be considered part of the estate).

Another interesting theory would be to proceed solely against ERISA

qualified assets since they are not included in the definition of estate in any

chapter (See 11 U.S.C. 541(b)(7)). The safest course of action, of course, is to

require the Movant to file Motion for Relief from the Automatic Stay

(timeline is approximately 30-60 days).

c. with respect to 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 statute (11 USC 362(b)(2)(C). This section

was added by BAPCPA to allow for the entry of income deduction orders for

DSOs. (See In re Powers 2010 WL 942166 (Bankr. S.D. Ind. 2010)).

d. The commencement or continuation of a criminal action or proceeding against

the debtor (11 USC 362(b)(1)).

i. It is not always clear whether an action is “criminal” in nature. Collection

of a “bad check” would seem to be a criminal proceeding. Nonetheless,

our local bankruptcy judges have often looked at the intent of the action to

determine whether the action is truly a criminal proceeding or a collection

action in disguise.

ii. The difference between criminal and civil contempt can be crucial. If a

party is truly being held for criminal contempt, then that action should not

be prevented by the automatic stay. (Criminal matters, including criminal

contempt proceedings, are not subject to the automatic stay of 11 U.S.C.

§362. In re: Michael Hughes, NDGA Judge Murphy 04-98206-MHM)

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e. the establishment of paternity (11 USC 362(b)(2)(A)(i))

f. the establishment or modification of an order for domestic support obligations

(11 USC 362(b)(2)(A)(ii)). There can be some very strange results as a result

of what is and is not stayed. For example: Ex-Wife files a contempt action

against Ex-Husband for failure to pay child support. Ex-Husband files a

motion to modify his child support obligation. The night before the hearings,

Ex-Husband files bankruptcy. The contempt action is stayed (11 U.S.C.

362(a)(1) and (2)), but the modification action is not (11 U.S.C.

362(b)(2)(A)(ii)).

g. concerning child custody or visitation (11 USC 362(b)(2)(A)(iii))

h. 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 (11

USC 362(b)(2)(A)(iv)). Again, an asset that is clearly not part of the estate

can be divided, but determining whether an asset is within that definition can

be problematic. It is best to have the parties seek relief from the Bankruptcy

Court.

i. regarding domestic violence (11 USC 362(b)(2)(A)(v))

2. The safest answer in every case, of course, is to require the parties to file a Motion

for Relief from the Stay. The process typically takes 30-60 days, but under

limited circumstances, can be heard on an emergency basis. The parties can also

file a motion and submit a consent order, which is typically entered within a few

days.

DISCHARGABILITY

1. Domestic Support Obligations. Prior to October 15, 2005, the Bankruptcy Code

differentiated between debts that were “in the nature of alimony, maintenance, or

support” and those that were merely “property settlements.” As a general rule,

support-type debts were non-dischargeable, property settlements were subject to a

balancing test. As a result, there was a fairly steady stream of litigation attempting to

determine the character, and therefore, the dischargeability of these debts. When the

Bankruptcy Code was revised, several substantial changes were made.

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a. The term Domestic Support Obligation was 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 non-

bankruptcy 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

non-bankruptcy 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.” 11

U.S.C. 101(14A)

i. Spouse or Former Spouse Requirement. Prior to the 2005 amendment,

the vast majority of courts [held] that there is no requirement that

alimony, maintenance of support be owed directly to a spouse or

dependent in order to be non-dischargeable under the Bankruptcy

Code.” In re MacDonald, 69 B.R. 259 (Bankr D. N.J. 1986). While

the 2005 revisions might be read to contradict that interpretation, that

has not been the case. “[T[he fact that the attorney’s fee award is

payable directly to [the claimant’s attorney] has no bearing on whether

the debt is a DSO. In re Marshall, 489 B.R. 630 (Bankr. S.D.GA.

2013)

b. DSO’s are never dischargeable. A discharge under Chapter 7 (11 USC 727),

Chapter 11 (11 USC 1141), or Chapter 13 (11 USC 1328(b) does not

discharge an individual debtor from any debt for a domestic support

obligation. (11 USC 523(a)(5)). In other words, DSOs are not discharged

even when there is a bankruptcy discharge entered.

c. Labels Don’t Matter/Factors to Consider. Despite the fact that there is no

such thing as “Federal Divorce Law”, it is actually federal law that determines

whether a debt is a DSO. Of course, State law plays a pivotal role in guiding

the decision. “A domestic obligation can be deemed actually in the nature of

support . . .even if it is not considered ‘support’ under state law.” In re

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Strickland, 90 F. 3d 444 (11th

Cir. 1996). My favorite summary of this area of

law is “If you take a can of peas and slap a corn label on it, does that make it a

can of corn? The answer, of course, is no. “Whether a given debt is in the

nature of support is an issue of federal law. Although federal law controls,

state law does provide guidance in determining whether the obligation should

be considered 'support' under § 523(a)(5). To make this determination a

bankruptcy court should undertake a simple inquiry as to whether the

obligation can legitimately be characterized as support, that is, whether it is

in the nature of support. In conducting this inquiry, a court cannot rely solely

on the label used by the parties. As other courts have recognized, it is likely

that neither the parties nor the divorce court contemplated the effect of a

subsequent bankruptcy when the obligation arose. The court must therefore

look beyond the label to examine whether the debt actually is in the nature of

support or alimony. A debt is in the nature of support or alimony if at the time

of its creation the parties intended the obligation to function as support or

alimony. Thus, the party seeking to hold the debt nondischargeable has the

burden of proving by a preponderance of the evidence that the parties

intended the obligation as support.” Cummings v. Cummings, 244 F.3d 1263,

1265 (11th Cir. 2001)). Having said that, the Courts (See In re Mac Donald,

194 B.R. 283 (N.D. Ga., 1996) typically look at any number of factors,

including, but not limited to:

i. The intent of the parties.

ii. Is the obligation subject to contingencies, such as death or remarriage?

iii. Is the obligation intended to balance disparate incomes of the parties?

iv. Is the debt payable in installments or a lump sum?

v. Is the obligation enforceable by contempt?

vi. What was the length of the marriage?

vii. Was there a clear need for support?

viii. What was the tax treatment of the obligation?

d. Concurrent Jurisdiction. The State and Federal Courts have concurrent

jurisdiction to make determinations of dischargeability under 11 U.S.C.

523(a)(5). (See 11 USC 523(c) omitting 523(a)(5) from those debts that

require an adversary proceeding to be filed to prevent discharge)

e. Examples:

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i. Education Expenses. Generally speaking, education expenses for a

minor child are considered a form of support. This is true, even for

post-majority education expenses (“the nature of debtor's promise to

pay educational expenses and child support is not determined by the

legal age of majority under state law. The bankruptcy court

characterized the agreement to pay educational expenses as in the

nature of support, and the only ground on which debtor has

challenged that characterization on appeal relates to the state law

legal duty as determined by the age of majority.” In re Harrell, 754 F.

2d 902 (11th

Cir. 1985))

ii. Medical and health insurance. Courts typically examine the relative

financial circumstances of the parties to determine whether an

obligation to pay health insurance is a support obligation. (“In

addition to the Final Decree's assessment of $400.00 per child as

monthly child support, the Interlocutory Orders of the court ordered

the Debtor to pay any and all existing debts related to the medical

care of the four children. Like the creation of the Debtor's direct

support obligation, the assessment of responsibility for these debts

formed part and parcel of an unmistakably clear program by the state

court to insure the present and future well-being of the children. As

such, to the extent that these debts still remain outstanding, the Debtor

may not discharge responsibility for them in bankruptcy.” Matter of

Robinson 193 B.R. 367 (Bankr. N.D. Ga. 1996)

iii. Life Insurance. Courts have found that, to the extent a life insurance

obligation is intended to protect a support obligation, that debt is,

itself, a support obligation and is non-dischargeable. In re Merrill 252

B.R. 497 (B.A.P. 10th

Cir. 2000), aff’d, 15 Fed. Appx. 766 (10th Cir.

2001)

iv. Effect of Assignment. Prior to the 2005 Amendments, an assignment

could effectively terminate a support obligation in bankruptcy. The

new Bankruptcy Code expressly allows for assignment so long as it is

“voluntary” and “for the purpose of collecting the debt.” (See 11

U.S.C. 101 (14A)(D) including within the definition of “domestic

support obligation” debts “not assigned to a nongovernmental entity,

unless that obligation is assigned voluntarily by the spouse, former

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spouse, child of the debtor, or such child's parent, legal guardian, or

responsible relative for the purpose of collecting the debt.”)

v. Attorneys Fees. Attorneys fees awarded in connection with a support

award are typically considered “in the nature of” support as well and

are therefore non-dischargeable. The determination generally turns on

the relative financial circumstances of the parties. (“§ 523(a)(5)

requires nothing more than "a simple inquiry as to whether the

obligation can legitimately be characterized as support." In re Harrell,

754 F.2d at 906 (11th

Cir. 1985)).

1. Awards Payable to Opposing Counsel. This has been an area

of concern for some time. An award owed solely to opposing

counsel is clearly not “owed to, or recoverable by a spouse”.

However, despite concerns, most Courts seem to find that the

award is still a form of support. “it is clear that pre-BAPCPA

precedent overwhelmingly concludes that an award of

attorney’s fees does not lose its DSO character by being

payable directly to the attorney. Matter of Holt, 40 B.R. 1009

(S.D. Ga. 1984); Stevens, 2006 Bankr. LEXIS 5096, 2006 WL

6885815; see also In re Bedingfield, 42 B.R. 641 (S.D. Ga.

1983) (support obligations may be DSOs even if not payable

directly to wife or children). Post-BAPCPA cases have reached

similar decisions. See, e.g., In re Andrews, 434 B.R. 541

(Bankr. W.D. Ark. 2010) (finding under current law that

attorney’s fee award arising from a divorce decree was a

‘domestic support obligation′’ even though the payee was

former wife’s attorney); Rogowski, 462 B.R. 435 (surveying

cases and holding that matrimonial attorney’s fees payable

directly to the attorney satisfied the definition of DSO).” In re

Marshall, 489 B.R. 630 (Bankr. N.D. Ga. 2013).

2. Attorney’s fees to a party’s own attorney. These fees are not a

domestic support obligation and are dischargeable on the same

basis as any other unsecured general debt. “Every court that

has published a decision on this issue has held that a debt due

from a debtor for his or her own attorney fees incurred in

connection with matrimonial and related proceedings are

dischargeable.” (In re Dean, 231 B.R. 19 (Bankr. W.D. N.Y.

1999). Attorneys are free to secure their debts, which would

change their treatment. This, of course, is not common

practice, but does happen on occasion.

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vi. Guardian Ad Litem Fees. Guardian Ad Litem fees are typically

considered support obligations and are non-dischargeable. However,

since the payee is not a “spouse or former spouse” similar concerns

exist as those above. Again, despite the plain language of 11 U.S.C.

101(14A), most Courts have ignored the payee and examined the

nature of the debt itself to determine whether the debt is dischargeable.

“It is nearly universally recognized that when a state domestic

relations court appoints a guardian ad litem to protect the interests of

a child, the services provided by the guardian ad litem have the effect

of providing support. The parents or other parties who created the

dispute requiring the appointment of the guardian ad litem must bear

the cost of that support. Accordingly, equity requires—and the clear

weight of caselaw authority holds—that fees incurred by a guardian

ad litem be classified as a support obligation that may not be

discharged by the parent or other party responsible for the fees. Cf.

Reissig v. Gruber (In re Gruber), 436 B.R. 39, 43 (Bankr.N.D.Ohio

2010) (‘[T]he attorney fees were awarded in a proceeding concerning

the health and welfare of the Parties' children. As such, it is

impractical to sever the award of attorney fees from the needs of the

children.’)” In re Kassicieh, 467 B.R. 445 (Bankr. S.D.Ohio, 2012).

vii. Mediation Fees. I have not seen a case on this issue, but if a party

is ordered to pay mediation fees for which the other party is

responsible, presumably the debt would either be non-

dischargeable as a support obligation (523(a)(5)) or as an “other

debt” in “connection with a separation agreement, divorce decree

or other court of record” (523(a)(15)). Remember that if the

obligation is construed as an “other debt” it would be discharged in

a completed Chapter 13 case.

f. Hindsight is 20/20. Orders and agreements are not always drafted with

bankruptcy concerns in mind. The following are examples of language that

could be used to require the payment of alimony.

i. “Husband shall pay Wife the sum of $25,000 in monthly installments

of $1000.” This example certainly could be alimony, but it begs more

questions: Was it labeled alimony? Was there other property

division? How long were the parties married?

ii. “Due to the income disparity of the parties and their relative financial

positions, the following is awarded as alimony: Husband shall pay

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=6QBgpjvP8pEvNETLu4VC5%2bCLqGp0trwZOfaj7bB34KkSfT8mn%2bYFrMJnq%2brg4Zf44eVPOl4hRU%2baTCz%2ffUABYLQ5Y2W48ylDwbBkG7Lk5%2bK031C33uLqgcwM9PjjF%2fsWOESBtyVL%2fRUfmQ4rNwnbmQ%3d%3d&ECF=436+B.R.+39%2c+43+(Bankr.N.D.Ohio+2010)

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=6QBgpjvP8pEvNETLu4VC5%2bCLqGp0trwZOfaj7bB34KkSfT8mn%2bYFrMJnq%2brg4Zf44eVPOl4hRU%2baTCz%2ffUABYLQ5Y2W48ylDwbBkG7Lk5%2bK031C33uLqgcwM9PjjF%2fsWOESBtyVL%2fRUfmQ4rNwnbmQ%3d%3d&ECF=436+B.R.+39%2c+43+(Bankr.N.D.Ohio+2010)

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Wife $25,000 in monthly installments of $1000.” While this language

is far from perfect, it certainly lends itself to a clearer determination

that this was, in fact, intended as alimony.

iii. Hedging. I get a fair number of questions asking whether this

language or that language will prevent discharge if the obligee files for

bankruptcy. My favorite is the “hedged bet.” The proposed language

might as well read as follows: “We mean for this to be property

settlement so no one has to pay any taxes, but if you file bankruptcy,

well then, of course, we meant for it to be alimony and it can’t be

discharged in bankruptcy.” There simply are no “magic words.” The

obligation either was intended as a property settlement or as alimony

at the time it was created; it doesn’t change because one party filed for

bankruptcy protection.

2. Property Settlement/Other. Although lawyers still use the term “property settlement”

to refer to the debts included under 11 U.S.C. 523(a)(15), the better term would

probably be “other debts”. In 2005, Section 523(a)(15) of the Bankruptcy Code was

amended to read, “to a spouse, former spouse, or child of the debtor and not of the

kind described in paragraph (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.” Clearly, this definition expands coverage of

debts beyond traditional “property settlement” obligations.

a. Differences among the Chapters. The treatment of these types of debts varies

tremendously between Chapter 7 and Chapter 13.

i. Chapter 7. The old “balancing test” is gone. If a debtor files Chapter

7, not only are the DSO’s not discharged, but any debt that could be

included within the 523(a)(15) definition is not discharged either. The

creditor need not take any action to protect his or her rights. The

language “separation agreement, divorce decree or other order of a

court of record” (emphasis added) has virtually eliminated the

discharge of any debt that is related to a divorce or other domestic

action. (“the Award granted to Respondent in connection with

defending her rights under the divorce decree falls within the meaning

of 523(a)(15).” In re Howerton, N.D.Ga. 12-01055. See also In re

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Koscielski 2011 WL 338634 (Bankr. N.D. Ill, January 31, 2011)

concluding that attorneys fees incurred in connection with enforcement

of a divorce decree were non-dischargeable pursuant to 11 USC

523(a)(15), In re Cavagnetto, 2012 WL 6585560 (Bankr N.D. Ill

2012) holding that attorneys fees as a sanction against the debtor for

filing a baseless complaint in connection with divorce proceedings

were not dischargeable under 11 U.S.C. 523 (a)(15), Zimmerman v.

Hying, 477 B.R. 731 (Bankr. E.D. Wis. 2012) attorneys fees ordered

pursuant to post-divorce contempt proceedings non-dischargeable

under both 523(a)(5) and 523(a)(15))

ii. Chapter 13. Upon successful completion of a Chapter 13 plan, any

unpaid debt for “property settlement” (or “other debt”) is discharged.

11 U.S.C. 1328(a)(2) (The omission of a reference to 523(a)(15)

allows a “property settlement” (“other debt”) to be discharged.) As a

result, a former spouse should take care to examine the treatment and

classification of their debt prior to confirmation of the Chapter 13

Plan. They should also be sure to file a proof of claim within the

applicable timelines.

b. Adversary Proceeding Requirement. The 2005 amendments to the

Bankruptcy Code eliminated the need for a creditor to file an adversary

proceeding (Complaint to Determine Dischargeability) for any debts other

than those under 523(a)(2), (4) and (6). DSOs and property settlements are

not part of those sections. Therefore, while it is not imperative that a creditor

files an action during the bankruptcy case, it is certainly advisable. In theory,

a case can be reopened to file an adversary proceeding to determine

dischargeability at a later date.

3. Concurrent Jurisdiction. Both the Bankruptcy Court and Superior Court have the

right to determine dischargeability under 523(a)(5) and (15) (“although the

bankruptcy court has exclusive jurisdiction to determine the dischargeability of

certain debts resulting from false financial statements, fraud, embezzlement, larceny

or willful and malicious injury by a debtor, 11 U.S.C. §523(c), state courts have

concurrent jurisdiction to determine the dischargeability of other potentially

nondischargeable debts, including debts arising in domestic law proceedings that

may be nondischargeable under §523(a)(5) or (15).” Cummings v. Cummings, 244

F.3d 1263 (11th Cir. 2001); Eden v. Robert A Chapski, Ltd., 405 F.3d 582 (7th Cir.

2005)).

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=xVD3SvLOqtpNfY8dHzbOJ5u%2fDrYOYhjUfAU8V7S3Hg5oZfTswoSxYySFXeRejDaYtnt577bo9B%2bhTSpFf9Y%2fFeBTmhnWoT3qHqsdIriTeCIX30fOo0%2fBJr62fmQfh84TqPtXXHpVQ23ykXd9z3D%2baw%3d%3d&ECF=Cummings+v.+Cummings%2c+244+F.3d+1263+(11th+Cir.+2001)

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=xVD3SvLOqtpNfY8dHzbOJ5u%2fDrYOYhjUfAU8V7S3Hg5oZfTswoSxYySFXeRejDaYtnt577bo9B%2bhTSpFf9Y%2fFeBTmhnWoT3qHqsdIriTeCIX30fOo0%2fBJr62fmQfh84TqPtXXHpVQ23ykXd9z3D%2baw%3d%3d&ECF=Cummings+v.+Cummings%2c+244+F.3d+1263+(11th+Cir.+2001)

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=xVD3SvLOqtpNfY8dHzbOJ5u%2fDrYOYhjUfAU8V7S3Hg5oZfTswoSxYySFXeRejDaYtnt577bo9B%2bhTSpFf9Y%2fFeBTmhnWoT3qHqsdIriTeCIX30fOo0%2fBJr62fmQfh84TqPtXXHpVQ23ykXd9z3D%2baw%3d%3d&ECF=Eden+v.+Robert+A+Chapski%2c+Ltd.%2c+405+F.3d+582+(7th+Cir.+2005)

https://apps.fastcase.com/Research/Pages/Document.aspx?LTID=xVD3SvLOqtpNfY8dHzbOJ5u%2fDrYOYhjUfAU8V7S3Hg5oZfTswoSxYySFXeRejDaYtnt577bo9B%2bhTSpFf9Y%2fFeBTmhnWoT3qHqsdIriTeCIX30fOo0%2fBJr62fmQfh84TqPtXXHpVQ23ykXd9z3D%2baw%3d%3d&ECF=Eden+v.+Robert+A+Chapski%2c+Ltd.%2c+405+F.3d+582+(7th+Cir.+2005)

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The Bankruptcy Estate

Upon the filing of a bankruptcy case an estate is created. It includes “all of the following

property, wherever located and by whomever held2 . . .all legal or equitable interests of the

debtor in property as of the commencement of the case,3 any interest in property that could have

been property of the estate if such interest had been an interest of the debtor on the date of the

filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days

after such date . . as a result of a property settlement agreement with the debtor’s spouse, or of

an interlocutory or final divorce decree.4 Depending on the type of bankruptcy case filed, the

debtor may lose control over his or her assets. For example, in a chapter 7 case, a trustee is

appointed whose specific duty is to collect and liquidate the debtor’s assets for distribution to the

creditors. In a chapter 13 case, the debtor may maintain control over the asset, but will be

required to pay its value to the creditors.

Interests v. Claims

If you own property, you have an interest in it. If you are owed money, you have a claim

against the estate. This distinction is crucial in bankruptcy law as it may determine how much

money a party receives.

Let’s assume two unrelated individuals jointly own a bank account. If Individual A files a

bankruptcy case, only half of the value of the bank account is part of the bankruptcy estate.5

Individual B gets to keep her half. She has an interest in the asset. I often refer to this situation

as “taking off the top.”

On the other hand, if the debtor owes VISA $5000 and files a bankruptcy case, VISA has no

ownership interest in the debtor’s assets6. VISA has a claim against the estate and will receive a

prorated portion of its claim after all secured creditors have retrieved their property, the debtor

has been given credit for any exemptions7 permitted by law, and all administrative claims have

been paid. You can think of this situation as “taking off the bottom.”

2 11 U.S.C. 541(a) 3 11 U.S.C. 541(a)(1) 4 11 U.S.C. 541(a)(5)(B) 5 For purposes of simplicity, assume both parties contributed equally to the account and there are no other issues to be considered

between the parties. 6 Again, for the purposes of simplicity, assume that this was not a secured credit line, no other liens have been granted and no

judgment exists. 7 Exemptions can be thought of as protections of certain categories of property in different amount. The categories and amount

vary by state and are governed by 11 U.S.C 522. States can provide alternatives to the federal exemptions found in the Code or

can provide an exclusive list. Georgia has elected to provide an exclusive list. These can be found at O.C.G.A. 44-13-100.

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As a creditor, you always want to be taking off the top, not the bottom.

Timing is Everything!

Since the right of equitable division relates back to the date of marriage, you would be forgiven

for thinking that the interest exists as of the marriage. Unfortunately, with the exception of

community property states, state laws do not typically confer an interest in property during an

ongoing marriage. For the most part, the right to equitable division does not exist until the filing

of a divorce case. (See generally 1-2 Collier Family Law and the Bankruptcy Code P 2.01)

In In re Wilson8 for example, the court held that a wife’s interest in her husband’s property

became vested upon filing for equitable distribution under Pennsylvania law9. The Court of

Appeals for the Third Circuit seemed to follow this analysis, applying New Jersey law in In re

Kane10

, when it held, albeit in a different context, that a divorce litigant had an inchoate interest

in the marital property. The district court in Szyszko v. Szyszko11

came to the same result under

Illinois law. The bankruptcy court in In re Perry12

, holding that a spouse not holding title to

assets of her spouse acquired a property interest in those assets upon the filing of a divorce

complaint under Massachusetts law, compared that interest to a beneficial interest excluded from

the bankruptcy estate by section 541(d)13

. A similar result was reached in In re Fisher14

, in which

the court held that the wife’s previously inchoate interest in the husband’s separate property

vested under Colorado law when the divorce complaint was filed. In In re Fritch15

, the court held

that a debtor acquired rights in proceeds from a prenuptial agreement upon the filing of a divorce

8 In re Wilson, 85 B.R. 722 (Bankr. E.D. Pa. 1988). 9 See also In re Chandler, 441 B.R. 452 (Bankr. E.D. Pa. 2010). However, other bankruptcy courts have interpreted Pennsylvania

law differently based upon Pennsylvania appellate decisions which postdate Wilson. In In re McCulley, 150 B.R. 358 (Bankr.

M.D. Pa. 1993), the court held that the filing of a divorce gave rise only to a property settlement claim in favor of a spouse who

did not have title to a debtor’s property, which was a property settlement claim with only a right to distribution on a par with

other unsecured creditors. A similar result was reached in Schorr v. Schorr (In re Schorr), 299 B.R. 97 (Bankr. W.D. Pa. 2003);

and in In re Polliard, 28 C.B.C.2d 1067, 152 B.R. 51 (Bankr. W.D. Pa. 1993), which both held that although the right to seek

equitable distribution vests upon filing the divorce, that right is not a vested ownership interest and becomes only a claim against

the estate when a bankruptcy case is filed. Yet another approach to Pennsylvania law was taken by the court in Verner v. Verner

(In re Verner), 318 B.R. 778 (Bankr. W.D. Pa. 2005), which held that a nondebtor seeking an in kind property award had both a

claim and a property interest, but that a debtor seeking monetary “equalization relief” has a prepetition claim). 10 628 F.3d 631 (3d Cir. 2010) 11 46 C.B.C.2d 988 (N.D. Ill, 2001) 12 In re Perry, 25 C.B.C.2d 1020, 131 B.R. 763 (Bankr. D. Mass. 1991). 13 See 5 Collier on Bankruptcy, ¶ 541.27 (Matthew Bender 16th Ed.). See also In the Matter of Smith, 123 B.R. 856 (Bankr. D.

Neb. 1990) (when prebankruptcy divorce judgment of record had conveyed to nondebtor spouse all rights under a land sale

contract, only debtor’s bare legal title interest in property sold under the contract became property of the estate). 14 In re Fisher, 67 B.R. 666 (Bankr. D. Colo. 1986). See also Perlow v. Perlow, 128 B.R. 412 (E.D.N.C. 1991) (citing North

Carolina law that a “species of common ownership vests at the time of separation,” but that rights were cut off by bankruptcy

filing because they were not perfected by filing of a lis pendens and, therefore, nondebtor spouse had only a claim against the

estate). 15 In re Fritch, 2011 Bankr. LEXIS 2161 (Bankr. S.D. Ind. June 3, 2011). See also In re Swarup, 521 B.R. 382 (Bankr. M.D. Fla.

2014) (debtor acquired interest in marital property upon Indiana divorce filing and could exempt that interest under Florida law).

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because under Indiana law a marital estate comes into effect at that time. In other contexts, state

courts in Colorado, Oregon and Minnesota have come to the same conclusion with respect to

their states’ laws.16

Other states, such as New York17

, New Jersey18

, North Carolina19

, Tennessee20

, Minnesota21

and

Maine22

do not seem to vest a right until the final decree is entered.

Georgia seems to follow the rule that rights attach at the time of filing the divorce case.

However, even if the rights vest at the time the divorce case was filed, the Trustee may have

superior rights to the property and be able to sell the property free and clear of the equitable

claim of the wife if nothing is recorded to disclose the wife’s interest.23

The filing of a lis

pendens may prevent this outcome.

16 Marriage of Engle, 293 Or. 207, 646 P.2d 20 (Or. 1982). See also Corzin v. Fordu (In re Fordu), 201 F.3d 693, 43 C.B.C.2d

453 (6th Cir. 1999) (one spouse’s right to lottery proceeds became marital property under Ohio law when dissolution proceeding

was filed). 17 In re Hilsen, 119 B.R. 435 (S.D.N.Y. 1990). But see In re Nicholson, 90 B.R. 64 (Bankr. W.D.N.Y. 1988) (when funds from

sale of jointly held property were held in escrow pending determination of spouses’ rights to funds in divorce case, debtor

spouse’s estate held only contingent interest in the funds until final distribution made in divorce case). See also Ara v. Anjum (In

re Anjum), 288 B.R. 72 (Bankr. S.D.N.Y. 2003) (although husband and wife entered into stipulation to divide property before

bankruptcy was filed, because stipulation was not yet incorporated into final divorce decree when husband filed bankruptcy

petition, the property that was to have gone to wife remained property of bankruptcy estate and wife had only an unsecured

prepetition claim); In re Frederes, 141 B.R. 289 (Bankr. W.D.N.Y. 1992) (neither debtor nor trustee had interest in property titled

in nondebtor spouse in case in which divorce proceedings were still pending at time of bankruptcy filing); In re Greenwald, 134

B.R. 729 (Bankr. S.D.N.Y. 1991) (when New York divorce decree had been entered, wife acquired vested property rights in

property awarded by divorce court; fact that she sought to enforce these rights by reducing them to a money judgment as

permitted by divorce decree did not reduce her rights to those of a secured creditor); Sinha v. Sinha, 285 A.D.2d 801, 727 N.Y.S.

537 (2001) (no vested interest or claim for property settlement debt arises until divorce decree). 18 In re Howell, 311 B.R. 173 (Bankr. D.N.J. 2004) (citing several earlier decisions).

19 In re Halverson, 151 B.R. 358, 5 4th Cir. & D.C. Bankr. Ct. Rep. 419 (M.D.N.C. 1993). Justice v. Justice, 123 N.C. App. 733,

475 S.E.2d 225 (1996). See also Bolton v. Bolton (In re Bolton), 2010 Bankr. LEXIS 3147 (Bankr. E.D.N.C. Sept. 13, 2010)

(where divorce had been granted, but equitable distribution not resolved, before bankruptcy, nondebtor spouse had a contingent

nondischargeable claim against chapter 7 debtor); LeJeune v. LeJeune (In re LeJeune), 283 B.R. 398 (Bankr. E.D. La. 2002)

(claim for reimbursement of marital property expenses incurred after divorce was granted but before equitable distribution

decision was prepetition claim); In re Emelity, 44 C.B.C.2d 841, 251 B.R. 151 (Bankr. S.D. Cal. 2000) (property settlement claim

in divorce pending at time of bankruptcy petition was discharged). The issue of dischargeability in some of these cases would be

decided differently after the 2005 amendment to section 523(a)(15), which made property settlement claims nondischargeable in

chapters 7, 11 and 12. See ¶ 6.07A infra. 20 In re Hohenberg, 174 B.R. 487 (Bankr. W.D. Tenn. 1994). 21 In re Johnson, 210 B.R. 153 (Bankr. D. Minn. 1997). 22 In re Cox), 274 B.R. 13 (Bankr. D. Me. 2002), aff’d in part, rev’d in part, 356 F.3d 76 (1st Cir. 2004) (declining to rule on

issue of whether property vested upon filing of divorce case, but finding that circumstances of case gave rise to constructive trust

in favor of nondebtor spouse). 23 See Anderson v. Briglevich, 147 B.R. 1015, 1021-1022 stating, “In [1022] this case, at the time of bankruptcy, debtor held sole

title to the real estate at issue and defendant Rose Briglevich had no recorded interest in the properties. Thus, any interest in

specific real estate that she may have claimed as marital property is superseded by plaintiff's powers under § 544(a)(3).” See also

In re Elrod, 91 B.R. 187 (Bankr. M.D.Ga 1988) confirming that the “Trustee has the status of a bona fide purchaser. As such,

Trustee may avoid any interest against property of the debtor that is not properly perfected and of which Trustee has no notice.”

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Why is all this important?

Now that we have addressed the basic issues of what constitutes the bankruptcy estate and

whether your client has an interest or a claim, we can start to formulate advice.

Example 1:

You represent Husband in a potential divorce. He and his wife have been married 15 years. The

Wife is the main income earner but has lost her job recently. Husband has, for the most part,

been the stay at home dad. For the purposes of asset protection, most of the assets have been

placed in Husband’s name. Wife has substantial credit card debt. If Wife files a bankruptcy

case before the divorce is filed, she does not own many assets, has no current income and has

substantial debt. She also has no equitable claim to any of the, otherwise marital, assets. It may

make sense to hold off on filing the divorce until the bankruptcy is completed. If you file the

divorce case before the Wife files bankruptcy, the court may conclude that she has an equitable

interest in the marital assets even though a final decree has not been ordered.

Example 2:

You represent Wife in a divorce that has already been filed. Husband was the main income

earner and the property is mostly in his name. Husband files bankruptcy. The Trustee will

attempt to sell the assets to pay creditors. You need to assert an equitable ownership interest in

the marital property to protect the Wife.

In general, most bankruptcy lawyers advise that filing the bankruptcy case first is the better

option. While that may be the most likely advice, each case should be reviewed independently.

VOIDABLE TRANSFERS

Normally, we think of voidable transfers in the context of fraud. Clearly, transfers that

are fraudulent are voidable. However, the Bankruptcy Code also allows for the avoidance of

transfers that are otherwise “proper” but are deemed a “preference” under the Code. Property

division may be exactly the type of transfer that falls into the former category.

1. Timelines: The division of assets prior to a bankruptcy may be considered a

“preference” in violation of §547 (1-year look back for insiders) or a fraudulent transfer

in violation of §548 (2-years under Code, 4-year look back under UFTA).

2. Surface Determination Rule: Some courts conduct a “surface determination” asking are

the transfers contained in the settlement a reasonable reflection of what would have

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happened at trial? In re Dunham, 2000 WL 33679421 (Bankr. D.N.H.); In re Sorlocco,

68 B.R. 748, 753 (Bankr. D. N.H. 1986).

3. Reasonably Equivalent Value Concern: The Code uses the term “reasonably

equivalent value” which does not contemplate the equities of the parties. In re Hinsley,

201 F.3d 638 (5th Cir. 2000) (intangible benefits do not constitute reasonably equivalent

value) See also In re Neal, 461 B.R. 426 (Bankr. N.D. Ohio 2011) (debtor’s agreement to

property division that favored former husband in exchange for avoiding litigation was not

reasonable equivalent value); In re Perts, 384 B.R. 418 (Bankr. E.D. Va. 2008) (transfer

to former spouse pursuant to marital settlement agreement fell outside reasonable range).

However, in In re Bledsoe, 350 B.R. 513 (Bankr. D. Or. 2006), aff’d, 569 F.3d 1106 (9th

Cir. 2009) the court held that a state court property division without evidence of fraud or

collusion established reasonably equivalent value.

4. Trial: Cases that are tried are rarely (if ever) reviewed.

5. Concerns:

• If the Court is willing to look at all settlement negotiations regardless of intent,

but not cases that have been tried, does this mean that the best advice to family

law attorneys is that they should try all cases? Clearly this makes no sense.

Unfortunately, it may be the best advice at the moment.

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EXHIBIT A

Domestic Relations Financial Affidavit – Georgia

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Divorce: When a Spouse Files BankruptcyStafford Publications, Inc.

Tuesday, April 25, 2017

I. Domestic Support Obligations (“DSO’s”), In GeneralFor more detailed information on the Divorce-Family Law overlay, See, The Family Lawyer’sGuide to Bankruptcy published by the American Bar Association Family Law Section andauthored by Shayna M. Steinfeld and Bruce R. Steinfeld.

Relevant Bankruptcy Code Statutes: 11 U.S.C. §§ 101(14A), 105, 362, 507(a)(1), 523(a)(5) and(15); 547 ( c)(7), 548, 1129(a)(9) and (a)(14), 1141(a), (d)(2) and (d)(5), 1325(a)(8) 1327,1328(a) and (a)(2).

What is a DSO? - 11 U.S.C. §101(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date ofthe order for relief in a case under this title, including interest that accrues on that debt asprovided 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, legalguardian, or responsible relative; or (ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by agovernmental unit) of such spouse, former spouse, or child of the debtor or such child’sparent, 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 forrelief 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 agovernmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assignedvoluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legalguardian, or responsible relative for the purpose of collecting the debt.

Shayna M. Steinfeld, Esq.Steinfeld & Steinfeld, P.C.

P.O. Box 49446Atlanta, GA 30359

404/[email protected]

How Do You Know If its Really a DSO?

• DSO’s are “in the nature of support.”

• pre-2005 “old” cases are still valid on this issue:A debt is in the nature of support and consequently non-dischargeable under §523(a)(5)only when it is “in substance support.”The court must determine if the obligation is “actually in the nature of alimony,maintenance or support” in order to determine if the obligation is a domestic support obligation for all purposes under the Bankruptcy Code.Federal Law is used to make determination and it is measured at the time of the divorce.

How Does the Court Make its Determination?• Generally, if the obligation is essential to enable a party to maintain basic necessities, thepayment of the debt is in the nature of support – support usually looks forward and nonsupportusually splits items and looks backwards.

• Recent cases indicate that the bankruptcy courts understand that a divorce settlement involves“horse trading.” A party may have been willing to give up alimony because they are getting agreater property division. But this is not consistent in its application.

• The courts generally consider the following factors:(1) The amount of alimony, if any, awarded by the state court and the adequacy of anysuch award;(2) The need for support and the relative income of the parties at the time the divorcedecree was entered;(3) The number and age of children;(4) The length of the marriage;(5) Whether the obligation terminates on death or remarriage of the former spouse;(6) whether the obligation is payable over a long period of time;(7) the age, health, education, and work experience of both parties;(8) whether the payments are intended as economic security or retirement benefits;(9) the standard of living established during the marriage.(10) the express language of the divorce agreement; (11) the relative financial positions of the parties at the time of the agreement;(12) the amount of the property division;(13) the number and frequency of payments;(14) whether the agreement includes a waiver of support rights;




(15) whether the obligation can be modified or enforced in state court; and(16) whether the obligation is treated as support for tax purposes.

• Some of these factors may be controlling – such as tax treatments on a “judicial estoppel”argument.

Car Payments as DSO• In re Merrill, 252 B.R. 497 (B.A.P. 10th Cir. 2000); and In re Krueger, 457 B.R. 465 (Bankr.D.S.C. 2011).

Mortgage Payments as DSO• See, e.g., In re Herbert, 321 B.R. 628 (EDNY 2005)(debtor’s obligation to make lump sumpayments for shelter was non-dischargeable support even though parties waived support underthe separation agreement). For a recent case see Price v. Price (In re Price), 545 B.R. 114(Bankr. W.D. PA. 2015)(chapter 13 case).

Education Payments as DSO• Education Expenses are generally considered a form of support. This is true, even for post-majority education expenses (“the nature of debtor's promise to pay educational expenses andchild support is not determined by the legal age of majority under state law. The bankruptcycourt characterized the agreement to pay educational expenses as in the nature of support, andthe only ground on which debtor has challenged that characterization on appeal relates tothe state law legal duty as determined by the age of majority.” In re Harrell, 754 F.2d902 (11th Cir. 1985)). See, In re Combs, 2016 WL 278841 (Bankr. W.D. Va. 2016)(requiredrepayment of 529 funds is a non-dischargeable DSO).

II. Treatment of DSO’s in Bankruptcy

• A DSO is NEVER discharged!!!! (Chapter 7, 11, 12 or 13);• Pre-petition DSO payments are not considered a preference under §547(c)(7);• Any DSO arrearage is afforded priority treatment under §507(a)(1);• Any DSO must be paid in full to obtain a confirmed Chapter 11, 12 or 13 plan (§§ 1129, 1222,1225 and 1322 and 1325);• There are exceptions to the automatic stay to collect DSOs under §362; • The Debtor must stay current on post-petition DSO payments in order to receive a discharge inChapters 12 and 13; (See, §§ 1228 and 1328). • The case may be dismissed or converted if on-going DSO payments are not made in Chapters




11, 12 and 13. (See, §§ 1112, 1208 and 1307).

A. The Binding Effect of Confirmation• See, e.g., Florida Department of Revenue v. Rodriquez (In re Rodriquez), 367Fed.Appx. 25 (11th Cir. 2010); U.S. v. White, 466 F.3d. 1241 (11th Cir. 2006); ComputerTask Group, Inc. v. Brotby (In re Brotby), 303 B.R. 177 (9th Cir. B.A.P. 2006); In reGonzalez, 2012 WL 2974813 (Bankr. S.D. Fla 2012); In re Hutchens, 480 B.R. 374(Bankr. M.D.Fla. 2012); Fort v. State of Florida Department of Revenue (In Re Fort),412 B.R. 840 (Bankr. W.D. Va. 2009); In re Gellington, 363 B.R. 497 (Bankr. N.D. Tex.2007); and In re Mercado, 124 BR 799 (Bankr. C.D.Cal. 1991) See also, U.S. Aid Fundsv. Espinosa, 130 U.S. 1367 (2010).

What follows is cut and pasted from a lengthy order entered by Judge Ellis-Monroof the Northern District of Georgia in contentious litigation between two former spousesin the Northern District of Georgia. The Order was entered on January 5, 2016 in the caseof In re Neman in the Adversary Proceeding Newman v. Yeager (In re Newman), CaseNo. 13-53426-BEM, AP 15-5395 2/5/16) evaluating the conflict being argued betweenthe non-discharge of the DSO owed by Debtor and the plan confirmation injunctionarising in a Chapter 11. Relevant parts of the Order (beginning on page 14 and ending onpage 21) are excerpted below:

B. The Binding Effect of a Confirmed Plan on Creditors With Non-Dischargeable Debts

Pursuant to 11 U.S.C. § 1141(a), " the provisions of a confirmed planbind the debtor, any entity acquiring property under the plan, and any creditor,"whether or not its claim is impaired under the plan and whether or not it votedto except the Plan. Notwithstanding the binding effect of the plan, a ChapterI I discharge "does not discharge a debtor who is an individual from any debtexcepted from discharge under section 523 of this title." Id. § 1141(d)(2).1

1 The Chapter 13 corollary to § 1141(a) is found in § 1327(a), which provides that the"provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim ofsuch creditor is provided for by the plan, and whether or not such creditor has objected to, hasaccepted, or has rejected the plan." Because the language of the two provisions is so similar, cases




Plaintiff [Debtor] contends that Defendant's [former spouse’s Superior Court]Motion for Contempt violates the provisions of the Confirmed Plan,specifically the plan injunction. Supra at 5. Defendant contends that pursuantto Eleventh Circuit precedent, the Bankruptcy Court cannot prevent her frompursuing collection of her non-dischargeable debt, regardless of theprovisions of the Plan. Both parties are correct. However, neither party'sposition provides a complete answer to the issues raised in this proceeding,which highlights the the tension between two important bankruptcy policies,"finality of the provisions of a confirmed plan, and the almost sacrosanct nature ofdomestic support obligations even from relief in a bankruptcy case " Fort v. Stateof Florida Department of Revenue (In re Fort), 412 B.R. 840, 857 (Bankr. W.D.Va. 2009). In Fort, the court held that a creditor with a DSO was bound by theconfirmed chapter 13 plan2 with respect to treatment of its claim. Id. at 860.Therefore, the DSO creditor could not continue collecting its claim throughan employment deduction order during the pendency of hte plan. Id. However,“the amount owing by [the debtor] and any amount in excess of htat for whichpayment is provided in the confirmed plan will continue to exist until full paidus a non-dischargeable obligation. Id.

The Eleventh Circuit adopted a similar approach in Florida Departmentof Revenue v. Rodriquez (In re Rodriquez), 367 Fed. Appx. 25 (11th Cir.2010). In Rodriquez, the Court concluded that the bankruptcy court wascorrect in holding a child support creditor in contempt for engaging incollection activities during the pendency of a chapter 13 plan. Id. at 28. Afterthe debtor's first plan was confirmed, the Florida Department of Revenue("DOR") filed a proof of claim for child support delinquency. Thereafter, thedebtor filed an amended plan that provided for payment of the arrears and theongoing monthly payments in the amount ordered by the state court. Thedebtor later amended his plan again to reduce the ongoing payments to halfthe amount ordered by the state court. During the pendency of the case, theDOR sent the debtor three collection letters. The debtor filed a motion forcontempt, alleging the letters violated the automatic stay. Id. at 26. Thebankruptcy court ruled in favor the debtor. Id. at 26-27. On appeal, the

construing § 1327(a) are helpful for interpreting § 1141(a). Padilla v. Wells Fargo Home Mortg.(In re Padilla), 379 B.R. 643, 663 n.8 (Bankr. S.D. Texas 2007); see also In re Davis, 481 Fed.Appx. 492, 495 (11th Cir. 2012).




district court found no stay violation, but upheld the contempt orderbecause the DOR had violated the confirmed plan. Id. at 27. The EleventhCircuit affirmed the district court because "the State violated the confirmationorder by asserting an interest other than those provided for in the plan afterconfirmation." Id. at 28 (citing In re Gellington, 363 B.R. 497, 502 (Bankr.N.D. Tex. 2007)).

The court in In re Gonzalez, No. 11-23183, 2012 WL 2974813 (Bankr.S.D. Fla. July 20, 2012), applied Rodriguez when the Florida DOR seized atravel reimbursement check issued to the debtor by the U.S. Treasury, despitethe fact that the debtor's chapter 13 plan provided for payment of the DOR'sclaim for child support arrears. Id. at *1. The court considered "whether theactions taken by a creditor are inconsistent with, or at odds with, theconfirmed plan." Id. at *3. The court found that the DOR's interception ofthe reimbursement check "was contrary to the express provisions of theDebtor's Plan, which provides that the arrearage of $2,400 will be paid in fullat the end of the first forty five months." Id. The court relied on Rodriquezfor the proposition that domestic support creditors are bound by the terms ofthe confirmed plan, and that "so long as the Debtor is meeting his obligationsunder the Plan, the DOR may not take any action inconsistent with the Plan."Id. at *4. The court held the DOR in contempt for violating the confirmationorder.3Id. at *5. See also In re Hutchens, 480 B.R. 374, 385 (Bankr. M.D. Fla.2012) (chapter 13 debtor's ex-wife was "bound by the terms of the confirmedplan" and any attempt to collect prepetition support obligations in state courtwas "barred by the terms of the confirmation order" such that she "must wait forthe bankruptcy case to be closed or dismissed before she may attempt to collectthe projected unpaid domestic support obligation...").

The holding in Gonzalez is also supported by United States v. White,466 F.3d 1241 (11th Cir. 2006). White involved a non-dischargeable tax debtin an individual chapter 11 case under pre-BAPCPA law. The debtor's planwas confirmed on May 18, 1994 with an effective date of July 17, 1994. OnJuly 4, 1994, the Internal Revenue Service ("IRS") assessed tax liabilities againstthe debtor in excess of $100,000 for failure to pay withholding taxes for hisemployees, and thereafter sued to collect. Id. at 1243-44. Under thenapplicable law, the debtor had received a discharge upon confirmation of theplan. Id. at 1245. Because the discharge served to terminate the automatic

3 The district court affirmed, State of Fla. Dept. of Rev. v. Gonzalez (In re Gonzalez), No.1:15-cv-20023, 2015 WL 5692561 (S.D. Fla. Sept. 29, 2015), and the case is currently pendingon appeal in the Eleventh Circuit Court of Appeals, no. 15-14804 (appeal filed Oct. 23, 2015).




stay, the only injunction in effect at the time the IRS took action was thedischarge injunction. Id. Because the discharge injunction arose atconfirmation and because it does not apply to non-dischargeable debts, "once aplan has been confirmed, holders of non-dischargeable debts can generallypursue collection unless the plan has provided otherwise or unless the courtotherwise orders." Id. at 1246 (emphasis added). The court went on to say, "[i]tis true that a plan can delay the payment of nondischargeable debts, butsuch provisions require the approval of the bankruptcy judge ..." Id. at 12

Similarly, in In re Brotby, 360 [303] B.R. 177 (9th Cir. BAP 2003), theCourt considered whether a plan provision enjoining collection by a creditorholding a non-dischargeable claim while the debtor makes payments to othercreditors under a chapter 11 plan violates §1141(d)(2). The Court held that§1141(d)(2) "preclude[s] a reorganization plan from dischargingnondischargeable debt; the provision should not restrict a plan fromtemporarily enjoining collection of a nondischargeable debt if the delay is""necessary for the success of the plan and the other requirements of §1129 aresatisfied."" Id. at 187 (quoting In re Mercado, 124 B.R. 799, 801-803 (Bankr.C.D. Cal. 1991))(emphasis in the original). In so holding, the court relied onCollier on Bankruptcy which states in part, ". . . performance under the planrequires that creditors participate collectively, [thus] it may be appropriate toenjoin individual collection efforts" and the legislative history for §1141which makes clear that "a debtor will remain obligated to paynondischageable debts after plan confirmation. . ." Id. at 187-188 (quoting, Collier on Bankruptcy ¶ 1141.05[2] (15th ed. Rev. 2001)). The Courtreasoned further, that

The reference to §1141(d)(2) in §1141(a) makes it clear that while allcreditors are bound by the provisions of a confirmed plan, this binding effect cannot operate to discharge an otherwise nondischargeable debt. Similarly, byreference to subsection (d)(2) in §1141(c), Congress instructs that whileconfirmation of a plan releases allproperty dealt with by the plan from claims of creditors, the plan cannotrelease property from §523 claims. . . .[Section] 1141(d)(2) was intended by Congress to answer the question whether after confirmation of a plan acreditor can collect a nondischargeable claim, not when.

Id. at 189 (citing Mercado, 124 B.R. at 804) (emphasis in the original). Notonly is Brotby consistent with Eleventh Circuit authority, the Court believes its




analysis of § 1141 is correct.4

C. Limitations on the Bankruptcy Courts' Ability to Determine Liability

These cases make clear that the holder of a non-dischargeable claim isbound by a confirmed plan. This does not mean, however that "thebankruptcy court determines the amount of support, or any other details of thedomestic affairs; those remain governed by the state courts." Rodriquez, 367Fed. Appx. at 29. The Circuit affirmed this principle in State of FloridaDepartment of Revenue v. Diaz (In re Diaz), 647 F.3d 1073 (11th Cir. 2011).

In Diaz, a chapter 13 case, the DOR filed a proof of claim for pastdue child support in the amount of $67,047.45. Id. at 1080. The debtorobjected to the interest portion of the claim; the DOR did not respond, andthe claim was reduced to $47,746.49. Id. The plan, which was confirmedwithout objection, provided for full payment of the allowed claim. Id. Duringthe plan, the DOR sent collection notices to the debtor but ceased doing so at thedebtor's request. Id. After the debtor completed his plan payments and thecase was closed, the DOR undertook efforts to collect the disallowedprepetition and post-petition interest. Id. at 1081. The bankruptcy court held theDOR in contempt for violation of the discharge injunction. Id. at 1082.

4 The issue whether to construe §1141 narrowly or broadly was at the center of thecourt's opinion because an earlier BAP panel had rejected the limited approach adopted byBrotby. Brotby 360 B.R. at 188-189. Courts that adopt the broad approach conclude that"parties holding nondischargeable debts identified in §1141(d)(2) 'are expressly excepted fromthose persons who are bound by the provisions of a confirmed plan.'' In re Amigoni, 109 BR 341,345 (Bankr. N.D. Ill. 1989)(quoting, In re Howell, 84 B.R. 834, 836 (Bankr. M.D. Fla. 1988)).See also In re DePaolo, 45 F.3d 373, 376 (10th Cir. 1995); Grynberg v. U.S. (In reGrynberg), 986 F.2d 367, 370 (10th Cir. 1993) cert. denied 510 U.S. 812 (1993); Goodnow v.Adelman (In re Adelman), 90 B.R. 1012 (Bankr. D.S.D. 1988). As discussed previously, theEleventh Circuit has held that a creditor with a non-dischargeable claim is bound byconfirmation, indicating that the limited approach is applicable in this circuit. In any event, theCourt believes the narrow approach is the correct approach for the reasons identified in Brotbyand importantly, because the binding effect in chapter 11 is necessary to facilitate a debtor's freshstart; a fundamental policy embodied in the Code.




The Eleventh Circuit reversed the bankruptcy court, reasoning that theamount of the DOR’s debt was not litigated in the bankruptcy court; the courtmerely determined the amount of the allowed claim-the amount of the debtthat would be paid by the bankruptcy estate. Id. at 1091. Any debt in excessof that amount was excepted from discharge and attempts to collect it could notrun afoul of the discharge injunction. In other words, a determination of theamount of an allowed claim is not preclusive under principles of resjudicata or collateral estoppel as to the amount of the underlying debt whenthe underlying debt is excepted from discharge. Id. at 1091-92. A contraryconclusion "could be especially problematic in the context of child-supportobligations. If bankruptcy courts could fix a debtor's personal liability for child-support through rulings on a claim objection or confirmation of a Chapter 13plan, this would often result in a de facto modification of state child-supportorders." Id. at 1092 n.16.

The court also noted a distinction between attempts to collect a debtthat has already been satisfied, which was not at issue, and attempts to collecta debt in violation of the discharge injunction. Id. at 1091 n.15. Because achild support obligation is non-dischargeable, collection activity can neverviolate the discharge. If, however, the debtor believes the creditor is attemptingto collect amounts that have already been satisfied, he may seek adetermination of liability from the state court. Id. at 1093.

Subsequent to Diaz, the Eleventh Circuit decided State of FloridaDepartment of Revenue v. Davis (In re Davis), 481 Fed. Appx. 492 (11th Cir.2012). Davis is a chapter 11 case in which a portion of the DOR's childsupport claim was disallowed. The chapter 11 plan provided that "failure tosubmit a claim by the claims bar date would constitute an adjudication, on themerits, of the debtor's liability." Id. at 493. The DOR filed a late claim after theplan had been confirmed, the debtor objected to the claim, and thebankruptcy court disallowed it as untimely and determined the debtor had noliability on the claim. Id. The DOR then attempted to collect the debt in statecourt. The bankruptcy court enjoined the DOR's collection action on theground that its determination of debtor's liability on the claim was res judicataas to any other court. Id. Once again, the Eleventh Circuit disagreed. Id. at 494.

In Davis, the court distinguished between the amount of an obligationand the estate's liability for an obligation. As in Diaz, the court concluded




that the bankruptcy court did not determine the amount of the underlyingdebt. It did, however, purport to determine that the debtor had no liabilityon that debt, whatever its amount. Id. at 495. The Eleventh Circuit said, "thebankruptcy court's decision as to 'liability' for a debt is really only a decisionabout whether the non-dischargeable debt will be paid by the bankruptcy estateas part of the bankruptcy plan." Id. It does not "preclude a creditor frompursuing an unpaid amount of [a nondischargeable claim] post-bankruptcy." Id.The court went on to say the debtor was free to litigate the amount of hisobligation in the appropriate state court. Id. n.2.

B. Issues Regarding Transfers of Property to Ex-Spouse

Fraudulent Transfers - 11 U.S.C. § 548

• §548 uses the term “reasonably equivalent value,” which does not contemplate theequities of the parties. In re Hinsley, 201 F.3d 638 (5th Cir. 2000) (intangible benefitsdo not constitute reasonably equivalent value) See also In re Neal, 461 B.R. 426 (Bankr.N.D. Ohio 2011) (debtor’s agreement to property division that favored former husbandin exchange for avoiding litigation was not reasonable equivalent value); In re Perts,384 B.R. 418 (Bankr. E.D. Va. 2008) (transfer to former spouse pursuant to maritalsettlement agreement fell outside reasonable range).

• Absent allegations of collusion, actual intent to defraud or that the divorce decree wasnot obtained pursuant to a regularly conducted proceeding under state law, some courtshold that transfers made pursuant to a divorce decree conclusively establish “reasonablyequivalent value” for purposes of §548(a)(1)(B). In re Erlewine, 349 F.3d 205 (5th Cir.2003) (stating that federal courts should not unwind a fully litigated divorce merelybecause of its unequal division or marital property); In re Zerbo, 397 B.R. 642, 651(Bankr. E.D.N.Y. 2008); In re Bledsoe, 350 B.R. 513 (Bankr. D. Or. 2006), aff’d, 569F.3d 1106 (9th Cir. 2009); But see, In re Holland, 2010 WL 8568848 (Bankr. S.D. Ga.Dec. 17, 2010) (J. Davis) (refusing to follow previous holdings which conclusivelyuphold marital divisions of property in the absence of collusion or fraud); In re Kimmell,480 B.R. 876 (Under Illinois law, the fact that a divorce court approves a divorcesettlement does not establish that the property granted under the settlement agreementwas equal in value”); Falk v. Hecker (In re Falk), 98 B.R. 472 (D. Minn 1989)(transferupheld because there was no showing of fraud or collusion and there were signs that theagreement was diligently negotiated);

• Other courts conduct a “surface determination” asking are the transfers contained inthe settlement agreement a reasonable reflection of what would have happened at trial?In re Dunham, 2000 WL 33679421 (Bankr. D.N.H.)and In re Sorlocco, 68 B.R. 748,753 (Bankr. D. N.H. 1986); But see, e.g., In re Fordu, 201 F.3d 693 (6th Cir. 1999)




(expressly rejected the “surface determination” approach in favor of simply comparingthe value of property surrendered with the value of property received); In re Stinson,364 B.R. 278 (Bankr. W.D. K.Y. 2007) (applying the test set forth in Fordu); In reDirks, 407 B.R. 442 (6th B.A.P. 2009) (same).

• Additional Case Law: See, e.g. Wallace v. McFarland (In re McFarland), 619F.Appx. 962 (11th Cir. 2015)(11th Circuit affirmed bankruptcy court in setting asidethe Debtor’s transfer under §548 as a fraudulent transfer of his half interest in realproperty to his non-debtor wife in non-divorce context), affirming 2014 WL 3925279(S.D.Ga. 2014) and 2013 W.L. 5442406 (Bankr. S.D.Ga. 2013). See, e.g., In reBargfrede, 1997 WL 352331 (8th Cir. 1997); Gray v. Snyder, 704 F.2d 709 (4th Cir.1983); In re Goldberg, 235 B.R. 476 (Bankr. D.Idaho 1999); In re Pilavis, 233 B.R. 1(Bankr. D.Mass. 1999); In re DeLauro, 207 B.R. 412 (Bankr. D.N.J. 1997); Rinehart v.Meek (In re Grady), 128 B.R. 462 (Bankr. E.D. Wis. 1991); Hoyt v. Hoyt (In re Hoyt),97 B.R. 730 (Bankr. D.Ct. 1989); and Goldstein v. Lange (In re Lange), 35 B.R. 579(Bankr. E.D.Mo. 1983). See also Dahar v. Riso (In re Riso), 102 B.R. 280 (Bankr.D.N.H. 1989)(a 58-42% split of property was reasonable under state law and precludedthe transfer made pursuant to a bona fide divorce from being set aside); An ex-spouse’swaiver of her right to alimony and support may constitute “reasonably equivalent value”to avoid avoidance of the transfer. In re DeLauro, 207 B.R. 412 (Bankr. D.N.J. 1997); Malloy v. United States, 743 F.Supp. 834 (S.D.Fla. 1990)(transfer was not avoidedbecause wife’s assumption of various obligations of the parties and other provisions ofthe decree resolving outstanding issues between the parties even though the partiesreconciled after the agreement was executed and before the divorce was finalized);Harman v. Sorlucco (In re Sorlucco), 68 B.R. 748 (Bankr. D.N.H. 1986)(transferpursuant to a divorce decree was upheld because there was no evidence of debtor’sinsolvency at the time of the transfer, there was no showing of fraud and the wife wouldhave been entitled to more property under state law); Dietter v. Dietter, 737 A.2d 926(Conn. App. 1999)(transfer during ex-husband’s business’ bankruptcy through trusteesale to ex-husband’s mother was not fraudulent). Finally, review, Corzin v. Fordu (In reFordu), 201 F.3d 693 (6th Cir. 1999); Campana v. Pilavis (In re Pilavis), 233 B.R. 1(Bankr. D.Mass 1999); Webster v. Hope (In re Hope), 231 B.R. 403 (Bankr. D.Dist.Col.1999); In re Glazer, 239 B.R. 352 (Bankr. N.D.Ohio 1999); Anderson v. Briglevich (Inre Briglevich), 147 B.R. 1015 (Bankr. N.D.Ga. 1992)(transfers made post-petitionpursuant to post-petition divorce decree could be set aside under §549).

Preferences - 11 U.S.C. § 547

• The division of assets prior to a bankruptcy may be considered a “preference” inviolationof §547 (1 year look back from insiders) or a fraudulent transfer in violation of §548 (2




years under Code, 4 year look back under UFTA). In re Dirks, 407 B.R. 442 (6th B.A.P.2009).

• Former spouses may be subject to the “insider” definition of §101(31) even thoughtheir relationship with the debtor is not specifically included within the list of capacitiesautomatically subject to the “insider” status of §547(b)(4)(B). In re Dupuis, 265 B.R.878 (Bankr. N.D. Ohio 2001) (noting that among the considerations for determiningwhether a former spouse is an insider are “whether [the spouses] ... maintain any sort ofbusiness relationship together” and “the extent to which the parties' marital assets ...continue to be intertwined”); In re Chira, 353 B.R. 693 (Bankr. S.D. Fla. 2006) (statingthat a former spouse is often held to be an insider where their relationship puts the non-debtor party in a position to exercise some degree of control or influence over thedebtor); Browning Interests v. Allison (In re Holloway), 955 F.2d 1008 (5th Cir. 1992)(finding former wife was insider under Uniform Fraudulent Transfer Act); In re Hill,342 B.R. 183, 199 (Bankr. D. N.J. 2006).

C. Automatic Stay, DSOs, IDOs and License Suspension• § 362(b)(2) There is no automatic stay to: establish paternity; establish or modifyDSO; establish custody/visitation; pursue domestic violence; for dissolution of themarriage (except dividing property of the estate); collect a DSO from non-estateproperty; withhold income that is estate property or debtor property for DSO paymentunder order or statute (§ 362(b)(2)(C)); suspending license, see, e.g. In re Penaran,424 B.R. 868 (Bankr. D.Kan 2010) and In re Kelly, 2009 W.L. 6499256 (Bankr. N.D.Ga 2009).

• There is no automatic stay to stop the reporting of overdue support to a reportingagency, or to stop the intercepting of a tax refund or the enforcement of medicalobligation. Parties proceed with actions at their own risk. See, e.g. In re Ojiegbe, 512B.R. 513 (Bankr. D.Md. 2014)(DSO creditor found to have violated stay with post-petition, post-confirmation, garnishment because funds were property of the estate). The Court may use its inherent powers under §105 to re-instate the license. See, e.g. Inre Kelly, 2009 W.L 6499256 (Bankr. N.D.Ga. 2009) and In re Cobb, 2006 W.L.6591596 (Bankr. N.D.Ga. 2006)(must show reasonable probability that a feasiblechapter 13 plan can be confirmed, which will result in payment of the obligation onwhich the license was suspended).

D. Post-petition Domestic Support Obligations• The Bankruptcy Code does not even permit the filing of a proof of claim for postpetitiondomestic support obligations. 11 U.S.C.S. § 502(b)(5). Section 502(b)(5) disallows anyclaim to the extent that such claim is for a debt that is unmatured on the date of the filing




of the petition and that is excepted from discharge under § 523(a)(5) of this Title. 11U.S.C.S. § 502(b)(5). Because postpetition domestic support obligations are not part of thedebt owed as of the date of the petition, such debts qualify as unmatured. Thus, a creditorcannot file a proof of claim for postpetition domestic support obligations. To the extent thedebtor has a continuing postpetition obligation to pay spousal support, a confirmed plancannot, and does not, affect that obligation. Therefore, a Chapter 13 debtor is required tomaintain postpetition domestic support obligations on a current basis out of postpetitionearnings or income, and such obligations should be reflected in the debtor's schedule ofexpenses. Young v. Young (In re Young), 497 B.R. 922, 924, 2013 Bankr. LEXIS 3830, *1,2013 WL 4830933 (Bankr. W.D. Ark. 2013).

E. Third Party Problem• Joint debt creates the most confusion.• The Divorce Decree is a contract between the two divorcing parties. It does not impactthird party creditors.• If a bankruptcy is filed, the underlying creditor has every right to collect from any otherindividual that signed on the debt and to negatively report on that person’s credit.• Hold harmless language can be crucial! But – watch out for cases where both partiesneed to file bankruptcy, then avoiding hold harmless language may be better or it may bebetter used deliberately and sparingly. For example, in a recent case, Judge Sacca, in theBankruptcy Court, N.D.Ga. allowed the discharge of co-signed business debts in a Chapter7 case because there was no hold-harmless clause between the divorcing parties with regardto the SBA loan for the business. There is a very thoughtful and thorough discussion of thehistory and purpose of hold harmless provisions in this case. Sherman v. Proyect (In reProyect), Case No. 12-81457-JRS, A.P. No. 13-05121-JRS [Doc. No. 21], December 11,2013 (cases go both ways on this though).

III. Are Attorney’s Fees DSO’s?

A. Attorney’s Fees to Opposing Counsel

• Generally, attorney’s fees due to the ex-spouse’s counsel are determined to be in thenature of support, and the award will be nondischargeable, even though payment may beto a third party rather than to the debtor. The majority rule is that an obligation to pay thespouse’s attorney’s fees is “so tied in with the obligation of support as to be in the natureof support or alimony and excepted from discharge.” In re Booch, 95 B.R. 852 (Bankr.N.D. Ga. 1988). See also, In re Marshall, Case No. 11-41469 Adv. Pro. #12-4050 (S.D.Ga., April 3, 2013)( reviewing and reaffirming debts owing to ex-spouse’s counsel forattorney fees are considered domestic support obligations even after the implementation of




BAPCPA).

• Notably, in the cases where the courts have found that the attorney’s fees are not “in thenature of support,” courts have generally determined that the obligation has failed the firstprong of the “Domestic Support Obligation” test and have focused on the fact that the debtis due directly to the lawyer or firm. Other courts have focused on the actual need for theunderlying fees or the statute that authorized the state court to award the fee in question inthe first place. Post-BAPCPA, some of these cases then hold, at least in the non-chapter 13context, that the fees are still non-dischargeable under §523(a)(15). Griefer LLP v. Prensky(In re Prensky), 416 B.R. 406 (Bankr. D. N.J. 2009)(attorney’s fees awarded to debtor’s ex-wife were not DSO but were non-dischargeable under §523(a)(15))

B. Attorney’s Fees Owed to the Party’s Own Attorney

• Attorney’s fees to a party’s own attorney are not a DSO and are dischargeable on the samebasis as any other unsecured general debt. “Every court that has published a decision on thisissue has held that a debt due from a debtor for his or her own attorney fees incurred inconnection with matrimonial and related proceedings are dischargeable.” In re Dean, 231B.R. 19 (Bankr. W.D. N.Y. 1999).

A Really Creative Approach • An attorney who was owed attorneys fees filed a Complaint under §523(a)(2)(A) forfraud, misrepresentations and/or false representations because her client failed to pay herfees. The first Circuit B.A.P. (Bankruptcy Appellate Panel) determined that the attorneyfailed to show that the debtor’s actions rose to a level beyond mere inability to repay. TheCourt left open the possibility that the attorney/creditor could have shown facts andcircumstances to prove a case under §523(a)(2)(A) if the evidence had been more in linewith the statute. See, deBenedictis v. Brady-Zell (In re Brady-Zell), 500 B.R. 295 (1st Cir.B.A.P. 2013).

C. Fees Payable to Guardian Ad Litem

• When a state domestic relations court appoints a guardian ad litem to protect the interestsof a child, the services provided by the guardian ad litem have the effect of providingsupport and it is, therefore, nearly impossible to escape payment of those fees. The parentsor other parties who created the dispute requiring the appointment of the guardian ad litemmust bear the cost of that support. Equity requires—and the clear weight of case lawauthority holds—that fees incurred by a guardian ad litem be classified as a supportobligation that may not be discharged by the parent or other party responsible for the fees.In re Kassicieh, 467 B.R. 445 (Bankr. S.D.Ohio, 2012). For an interesting review of variousissues in this context, see, Rackley v. Rackley (In re Rackley), 502 B.R. 615 (Bankr. N.D.




Ga. 2013).




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