Bankruptcy and Domestic Support, what is when dischargeable?

The new bankruptcy law enacted in 2005 (Bankruptcy Abuse Prevention and Consumer Protection Act, or short BAPCA) had a direct impact on Family Law. Some debts incurred in the course of a divorce proceeding are dischargeable in a chapter 13 and not in a chapter 7.

Domestic Support obligations or short DSO, are not dischargeable in neither chapter 7 nor chapter 13 proceeding. The Eights Circuit decided in 2011 (In re Phegly) that “Exceptions from discharge for spousal and child support deserves a liberal construction, and the policy underlying 523 favors the enforcement of familial obligations over a fresh start for the debtor, even if the support obligation is owed directly to a third party.” In that case the debtor in a chapter 13 bankruptcy case was obligated to pay spouse’s attorney fees. The 8th Circuit viewed the payment to spouse’s attorney as part of the support obligation. In a different decision the court considered attorney fees not as part of the support obligation because the awards were considered to be “conduct-based” (as in bad conduct by the husband).

Interest on a domestic support obligation was also viewed as part of the non-dischargeable support obligation. A penalty assessment for late payments is however not part of the DSO and therefor dischargeable through the bankruptcy filing (In re Smith, 1st Circuit 2009). The definition in 101 (14A) allows for the voluntary assignment of DSOs to non-governmental entities for the purpose of collection debt. Some have argued that this language could potentially harmful arguing that the DSO claim might not be protected if it can be assigned to someone.

The protection in chapter 7 is even broader, it excludes from discharge all marital or domestic relations debts incurred in connection with divorce, separation, or related action.