BANKRUPTCY: HOW CAN WE PROTECT THE INTERESTS OF THE CHILDREN WE SERVE? (CLE)

Transcription

1 Wednesday: Breakout Session 6 Workshop A Time: 10:15 a.m. - 11:30 a.m. Location: Atlantic 3 BANKRUPTCY: HOW CAN WE PROTECT THE INTERESTS OF THE CHILDREN WE SERVE? (CLE) When a parent files for bankruptcy, the child's right to support from that parent is sometimes lost in the tangle of legal proceedings. How can the IV-D child support agency protect the child's rights under these circumstances? This workshop provides instruction in those bankruptcy topics most frequently encountered by IV-D attorneys and child support staff. It focuses on the significant and far-reaching changes in the Bankruptcy Code, including some new and recent developments that affect the automatic bankruptcy stay and obtaining relief from the stay. Presenter: Moderator: John Saxon Professor of Public Law and Government University of North Carolina s School of Government Chapel Hill, NC Sara McCollum Regional Counsel Child Support Enforcement Division Massachusetts Department of Revenue Springfield, MA ERICSA 46th Annual Training Conference & Exposition Myrtle Beach, South Carolina 09

2 Bankruptcy & Child Support Enforcement The Basics (and Maybe Just a Little Bit More) for IV-D Attorneys and Agencies John L. Saxon UNC School of Government April 1, 2009

3 Bankruptcy Basics Domestic support obligation Claim in nature of alimony, maintenance, or support For debtor s spouse, debtor s former spouse, parent of debtor s child, or debtor s child Recoverable by spouse, former spouse, parent of child, child, guardian, relative, or government agency Established (or subject to establishment) By court order, separation agreement, etc. Not assigned to nongovernmental agency Except for purpose of collection April 1, 2009 UNC School of Government 2

4 Bankruptcy Basics Domestic support obligation includes Post- & pre-petition child support obligations Public assistance debt for debtor s child or spouse Obligation to support adult child Domestic support obligation doesn t include Obligation to support grandchild, step-child, etc. Obligation under prenuptial agreement Property settlement in separation or divorce April 1, 2009 UNC School of Government 3

5 Bankruptcy Basics Claim = right to payment Must exist at time debtor files petition Post-petition claims aren t allowed or paid May be fixed, disputed, contingent, etc. Priority claim Paid before general creditors in Ch. 7 if sufficient assets Paid in full in Ch. 13 Secured claim Secured, in whole or part, by lien on debtor s property April 1, 2009 UNC School of Government 4

6 Bankruptcy Basics Bankruptcy estate Debtor s interest in any property Exempt or nonexempt, jointly-owned, etc. At time petition is filed Certain pre-petition transfers if avoided Certain post-petition acquisitions Post-petition income & property in Ch. 13 Subject to bankruptcy court jurisdiction Until released via exemption, Ch. 13 plan, etc. April 1, 2009 UNC School of Government 5

7 Bankruptcy Basics Discharge Releases debtor from personal liability for claim Doesn t affect unavoided, valid security interest Doesn t affect post-petition claims Doesn t affect most nonscheduled claims Doesn t affect nondischargeable claims April 1, 2009 UNC School of Government 6

8 Automatic Stay Filing bankruptcy petition stays Commencement or continuation of Any legal proceeding against debtor that was or could have been commenced before petition was filed Legal proceeding to recover pre-petition claim Enforcement of pre-petition judgment Against debtor or bankruptcy estate Create, perfect, or enforce liens Against debtor s property for pre-petition claim or Against bankruptcy estate April 1, 2009 UNC School of Government 7

9 Automatic Stay Filing bankruptcy petition also stays Obtaining possession of bankruptcy estate Collection of pre-petition claim from debtor Set-off against pre-petition claim against debtor April 1, 2009 UNC School of Government 8

10 Automatic Stay Scope & duration of automatic stay Scope of stay is very broad Generally in effect until case closed or dismissed Three months (Ch. 7) to five years (Ch. 13) Some provisions expire if property Ceases to be part of bankruptcy estate But other provisions remain in effect And other provisions of Bankruptcy Code may apply as well April 1, 2009 UNC School of Government 9

11 Automatic Stay Bankruptcy court may grant relief from stay For good cause Collection of post-petition support Collection of pre-petition support if bankruptcy inadequate State court may determine applicability But can t grant relief Violation of automatic stay Actions in violation of stay are void or voidable Damages for willful violation April 1, 2009 UNC School of Government 10

12 Automatic Stay Automatic stay doesn t apply to Commencement or continuation of proceeding to Establish paternity Establish order for domestic support obligation Modify order for domestic support obligation Collection of support From property that is not part of bankruptcy estate Withholding income for support under order Regardless of whether income is part of estate April 1, 2009 UNC School of Government 11

13 Automatic Stay Automatic stay also doesn t apply to License revocation to enforce support obligation Collecting support via income tax refund intercept Reporting overdue support to credit agency Enforcing medical support obligation Criminal contempt To punish nonpayment of support, not coerce payment April 1, 2009 UNC School of Government 12

14 Claims for Domestic Support Proof of claim Filed by creditor or debtor Amount due & owing on date petition filed Priority, secured, contingent, or disputed Claim is allowed Unless debtor, trustee, or creditor files objection Adversary proceeding in bankruptcy court April 1, 2009 UNC School of Government 13

15 Claims for Domestic Support Contingent claim May be determined by bankruptcy court Bankruptcy court may defer to state court Disputed claim Bankruptcy court determines amount of claim Unless amount already determined by state court April 1, 2009 UNC School of Government 14

16 Payment of Support Claims in Ch. 7 Priority claim Paid by trustee before all other creditors Proof of claim must be filed (except no asset cases) Paid from liquidation of nonexempt property Support owed to individual Paid before support owed or assigned to government Secured claim Paid by trustee if property is liquidated Security interest remains valid if property not liquidated April 1, 2009 UNC School of Government 15

17 Domestic Support & Ch. 7 Discharge Domestic support claim isn t discharged Regardless of whether proof of claim is filed Unless paid in full Debtor may ask bankruptcy court or state court To determine whether or not claim was discharged as domestic support obligation Nondischarged domestic support claim May be enforced against debtor or property Including exempt property April 1, 2009 UNC School of Government 16

18 Payment of Support Claims in Ch. 13 Chapter 13 plan may not provide for Payment of post-petition support via trustee Post-petition support obligation May be modified by state court May be enforced by state court or IV-D agency If not barred by automatic stay Ch. 13 payment may trump withholding for support April 1, 2009 UNC School of Government 17

19 Payment of Support Claims in Ch. 13 Chapter 13 plan must provide for Payment of pre-petition domestic support obligation May be paid through trustee or by debtor outside plan Usually before payments to general unsecured creditors Full payment of priority domestic support claim Unless creditor agrees or claim assigned to government entity & plan commits all disposable income for five yrs. Full payment of secured domestic support claim or Surrender of property securing claim April 1, 2009 UNC School of Government 18

20 Payment of Support Claims in Ch. 13 Bankruptcy court may deny confirmation of plan If debtor fails to pay post-petition support As required by statute or judicial or administrative order If debtor s disposable income is insufficient to pay Debtor s post-petition domestic support obligations plus Ch. 13 payments and necessary living expenses If plan doesn t pay priority & secured claims in full April 1, 2009 UNC School of Government 19

21 Payment of Support Claims in Ch. 13 Confirmation of Ch. 13 plan Trumps state court order regarding support Pre-petition arrearages or post-petition support Precludes collection of pre-petition support Except as provided in Ch. 13 plan Some aspects of automatic stay remain in effect Exceptions to automatic stay do not override Ch. 13 plan April 1, 2009 UNC School of Government 20

22 Payment of Support Claims in Ch. 13 Modification or dismissal of Ch. 13 plan On motion of support creditor if Debtor fails to pay pre-petition or post-petition support Discharge Debtor is not discharged Unless all pre-petition & post-petition support required by statute or court or administrative order has been paid in full Pre-petition support obligation is not discharged May be enforced against debtor (including exempt property) April 1, 2009 UNC School of Government 21

23 Appearing in Bankruptcy Court Attorney for domestic support creditor May appear in bankruptcy court Without having been admitted to practice before court Is not required to pay filing fee for proceedings Upon filing of Bankruptcy Form 281 April 1, 2009 UNC School of Government 22

24 Bankruptcy & Child Support Enforcement The Basics (and Maybe Just a Little Bit More) for IV-D Attorneys and Agencies John L. Saxon UNC School of Government April 1, 2009