Source: http://www.legalcomplianceresource.com/articles/view.php?article_id=11157
Timestamp: 2019-04-22 18:25:19+00:00

Document:
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”)1 was enacted on April 20, 2005, when it was signed into law by President George W. Bush. The enactment of BAPCPA brought to an end a turbulent decade-long legislative reform initiative, the end product of which represents “one of the most comprehensive overhauls of the Bankruptcy Code in more than twenty-five years.” 2 This overhaul significantly changes consumer bankruptcy law by imposing many new requirements on debtors before bankruptcy relief will be granted. 3 Included within the changes resulting from the passage of BAPCPA are significant modifications to the manner in which bankruptcy law and family law interact. For the family law practitioner, knowledge of these changes is essential, due to the frequency with which family law and bankruptcy issues overlap. This paper will attempt to outline the major changes to the Bankruptcy Code that are associated with family law and particularly to how child support obligations are treated in bankruptcy, and will point out the many new issues that the family law practitioner will have to face as a result of BAPCPA’s passage.
The Bankruptcy Code is amended so that in order for a chapter 11 or a chapter 13 debtor to obtain a confirmation of his plan with the accompanying discharge, that debtor must be current on all support payments.
Prior to the implementation of BAPCPA, the Former Code defined these support-type obligations on a section-by-section basis, which led to some inconsistency throughout the Former Code. 11 Now, under the Amended Code and with BAPCPA’s definition of “domestic support obligation,” there will now likely be a uniform understanding of those family law debts and how those debts are dealt with under the Bankruptcy Code.
Under the Amended Code, Section 507(a)(1) of the Bankruptcy Code is amended to accord first priority status to allowed unsecured claims for domestic support obligations that, as of the bankruptcy petition date, are owed to or recoverable by a spouse, former spouse, or child of the debtor, or the parent, legal guardian, or responsible relative of the child. First priority status is granted without regard to whether such claim is filed by the claimant or by a governmental unit on behalf of such claimant, on the condition that funds received by such unit be applied and distributed in accordance with nonbankruptcy law. In contrast, under the Former Code, allowed unsecured claims for debts owed to a spouse or former spouse for alimony, maintenance or support of a spouse or child had seventh priority unsecured status.
As a result, the changes to the automatic stay provisions of the Bankruptcy Code implemented by BAPCPA will likely have a profound effect on support creditors in receiving payment from debtors upon the filing of a bankruptcy case.
Other important changes to the family law practitioner brought about by BAPCPA are those made to §§ 523(a)(5) and 523(a)(15) of the Bankruptcy Code, which address the nondischargeability of debts in a bankruptcy case. Generally, one of the major benefits a consumer debtor seeks by filing for bankruptcy is obtaining a clean slate by receiving a discharge of all prepetition debts upon the completion of the bankruptcy case. Under § 523 of the Bankruptcy Code, however, certain debts maybe excepted from discharge and would need to be paid even upon the completion of the bankruptcy case.
However, while BAPCPA does add some certainty into the discharge arena where it did not exist before, questions may still arise in certain cases. For example, under the Former Code, several courts had ruled that attorney’s fees arising out of divorce proceedings owed by the debtor to a former spouse were dischargeable notwithstanding § 523. 31 While it appears that the changes made by BAPCPA to sections 523(a)(5) and (15) cause these types of debts to fall within the nondischargeability provisions, these sorts of issues that fall along the edges of the Amended Code will still most likely have to be decided in the coming months and years by the courts.
The implementation of BAPCPA has changed the Bankruptcy Code so as to except from avoidance and recovery any payment made by a debtor that falls within the term “domestic support obligation,” as defined in § 101(14A). 35 Thus, after BAPCPA, under § 547(c)(7) of the Amended Code, all domestic support payments made by a debtor within ninety days prior to the filing of the bankruptcy will remain with the support creditor and cannot be avoided.
BAPCPA has made significant changes to consumer bankruptcy law. This paper has discussed most of those changes to the Bankruptcy Code significant to the family law practitioner. As can be seen from the discussion above, the changes to the Bankruptcy Code brought about by BAPCPA aim to prevent debtors from using the bankruptcy system as a way to avoid support obligations, while at the same time attempting to ease the support creditor’s ability to obtain payments.
1. BAPCPA amends 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”). A majority of the provisions of BAPCPA became effective for all bankruptcy cases filed on or after October 17, 2005.
2. Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr. L.J. 485 (Summer 2005).
3.The amendments also impose significant modifications with respect to commercial bankruptcy law.
4. Throughout this paper, to distinguish between the Bankruptcy Code provisions that were in effect before BAPCPA and those that came into effect because of BAPCPA, we will refer to those sections as the “Former Code” and the “Amended Code,” respectively.
5. The order for relief is usually the date that a debtor files its bankruptcy petition.
6. 11 U.S.C. § 101(14A) (2005).
11. Compare, e.g., 11 U.S.C. § 362(b)(2)(B) (1994) with 11 U.S.C. § 523(a)(5) (1994).
12. It should be noted that under the Amended Code, all secured claims will still be paid before domestic support obligations. Some commentators have noted that because BAPCPA also expands the rights of secured creditors, the significance of the changes in priority under § 507 do not significantly advance the cause of support creditors. See, e.g., National Women’s’ Law Ctr., Statement of Joan Entmacher on the Bankruptcy Bill, April 13, 2005, http://www.nwlc.org/details.cfm?id=2212&section=newsroom.
13. 11 U.S.C. § 362(a).
14. Id. § 362(b)(2)(A) (1994).
15. Id. § 362(b)(2)(A) (2005).
16. Id. § 362(b)(2)(C) (2005).
17. Id. § 362(b)(2)(E) (2005).
18. Id. § 362(b)(2)(F) (2005).
19. Id. § 362(b)(2)(G) (2005).
20. See Id. § 362(b)(2)(B) (Former Code).
21. See id. § 362(b)(2)(C) (2005).
24. Stmt. of Phillip L. Strauss, Dep’t of Child Support Svcs., San Francisco, reprinted in 22-4 Am. Bankr. Inst. J. 6 (May 2003).
25. 11 U.S.C. § 523(a)(5) (1994).
26. See 11 U.S.C. § 523(15); see also In re Dexter, 250 B.R. 222, 223 (Bankr. D. Md. 2000).
27. See, e.g., In re Moeder, 220 B.R. 52, 55-56 (BAP 8th Cir. 1998) (“the burden of proof lies with the debtor to show that an exception to nondischargeability under § 523(a)(15)(A) or (B) applies in a given case”); Gamble v. Gamble (In re Gamble), 143 F.3d 223, 226 (5th Cir. 1998) (upholding bankruptcy court's assignment of “the initial burden of showing that § 523(a)(15) was applicable to the debt in question” to the plaintiff and then assigning “the burden of proving that one of the exceptions applied to take it out” to the debtor); In re Jodoin, 209 B.R. 132, 140 (BAP 9th Cir. 1997) (“once the Plaintiff demonstrates that the debtor incurred the debt in connection with divorce, the burden shifts to the debtor to prove subparts (A) and (B)”); but see In re Butler, 186 B.R. 371, 373 (Bankr. D. Vt. 1995) (holding that the burden is on the creditor to prove all parts of § 523(a)(15)).
28. 11 U.S.C.. § 523(a)(5) (2005).
29. Id. § 523(a)(15) (2005).
30. Hon. William Houston Brown & Lawrence Ahern III, 2005 Bankruptcy Reform Legislation with Analysis, 32 (2005).
31. See, e.g., In re Lowther, 321 F.3d 946 (10th Cir. 2002); Adams v. Zentz0, 963 F.2d 197 (8th Cir. 1992).
32. Brown & Ahern, supra, note 30, at 32.
33. 11 U.S.C. §§ 547(b)(1) – (5) (2005).
34. Id. § 547(c) (7)(Former Code).
35. 11 U.S.C. § 547(c)(7) (2005).
36. 11 U.S.C. § 1307(c) (2005).
40. See Id. §§ 704(c)(1), 1106(c)(1), 1202(c)(1), 1302(d)(1).
For more infromation on these topics, please contact Joseph Schwartz or Kevin Larner.

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