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Creditors For Domestic Support Obligations May Not Violate The Terms Of A Confirmed Bankruptcy Plan

A Chapter 13 plan which repays creditors must be finalized or confirmed by the bankruptcy court. Until a Chapter 13 plan is confirmed, all interested parties may object to its terms. Once the period of time for creditors to object to their treatment in the plan ends, the court typically holds a confirmation hearing to determine if a Chapter 13 plan should be confirmed. While the automatic stay provides protection against collection activity related to property of the bankruptcy estate, there is an exception for domestic support obligations.  Recently, the Eleventh Circuit ruled this exception does not apply to creditors who are bound to the terms of a confirmed plan.

The Bankruptcy Code defines a "domestic support obligation" as a debt in the nature of alimony, maintenance, or support that accrues before, on, or after the date of the bankruptcy filing, that is owed to or recoverable by a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, responsible relative, or governmental unit. The debt must be established by a separation agreement, divorce decree, or property settlement agreement pursuant to court order.

Once an obligation is determined to be a "domestic support obligation" under the Bankruptcy Code, although unsecured, it receives preferential treatment as a priority debt, under 11 U.S.C. § 507(a)(1). The Bankruptcy Code provides an exception to the automatic stay, which generally prohibits collection activity against property of the estate, for “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.”

However, in Florida Dept. of Rev. v. Gonzalez (In re: Gonzalez), 2016 WL 4245422 (11th Cir. Aug. 11, 2016), the Eleventh Circuit held that there is no similar exception to a confirmed bankruptcy plan. After confirmation of Gonzalez's plan, which included a provision for full payment of Gonzalez’s child support arrearages, the Florida Department of Revenue ("DOR") intercepted a reimbursement payment to Gonzalez from his employer.

Gonzalez then filed a motion to hold the DOR in contempt for violating the confirmed plan, which was granted by the bankruptcy court and affirmed by the district court. On appeal to the Eleventh Circuit, the Florida DOR argued that the legislative history of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) supported the notion that the exception for domestic support obligations applied not only to the automatic stay, but also to a confirmed plan.

Based on the clear language" of § 1327(a) of the Bankruptcy Code, the Eleventh Circuit disagreed with the DOR, holding that confirmation binds all creditors to the plan:

“The legislative intent behind § 362(b)(2)(C), which permits a DSO (domestic support obligation) creditor to collect notwithstanding the automatic stay, does not indicate that Congress intended the exception to interfere with the binding effect [of] a confirmed plan per § 1327(a). As such, although the DOR did not violate the automatic stay when it intercepted Gonzalez’s reimbursement payment, it did violate the confirmed plan.”

The experienced South Florida defense attorneys at Loan Lawyers are here to review your potential claims against a debt collector, and will help you recover the damages you deserve. To schedule a free consultation at any of our three conveniently located offices, contact Loan Lawyers today by calling (888) FIGHT-13 (344-4813).