I recently wrote about priority claims in New York bankruptcy, and notably, the types of claims with the highest priority are called “domestic support obligations.” Readers probably have a fairly good idea of what these might entail, but the role the play in bankruptcy isn’t so obvious. Because bankruptcies often coincide with divorces, they are an important thing to know. Here are a few points.
- The Bankruptcy Code defines “domestic support obligations” in Section 101(14A). It’s too long to quote here, but there are actually three subsections. Domestic support obligations are debts (including interest) that come into existence before, on, or after the date a bankruptcy petition is filed. They can be owed to governmental units on behalf of domestic relations. They cannot be assigned to a nongovernmental entity unless done so voluntarily by the domestic relations or their guardians, and they need not be expressly designated as debts to family relations.
- Section 523 of the Bankruptcy Code excludes domestic support obligations from discharge in chapter 7 bankruptcy, so these creditors get paid irrespective of the bankruptcy.
- It’s not in the law, but trustees in chapter 13 New York bankruptcy require debtors to repay domestic support obligations in full because they are priority claims.
- However, chapter 13 debtors have a special advantage: Section 1328(a)(2) does allow them to discharge certain debts that come into being during divorce proceedings. These would be debts created in a partition of a marital estate during a divorce. These types of debts are not dischargeable in chapter 7, but they can be at the end of a chapter 13 case. It’s a pretty big difference.
Because child support and the types of debts created in the wake of a divorce are treated differently in bankruptcy, debtors can use the code to strategize how to handle them. Clearly, domestic support obligations cannot be evaded, but debtors who owe money to a former partner after the partition of the marital estate can try to discharge that obligation. It also means that it might be to a separating partner’s advantage to gain as much of a marital estate up front as possible, lest the former partner try to discharge the debt in chapter 13.
The intersection between family law and bankruptcy can complicate a bankruptcy, so it’s a good idea to hire an experienced New York bankruptcy lawyer to handle your case.
For answers to more questions about domestic support obligations, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced business bankruptcy lawyer Bruce Weiner for a free initial consultation.