The statutory exception to the automatic stay allowing garnishment of wages to pay a domestic support obligation ceases on confirmation of a chapter 13 plan, according to an Aug. 11 decision by the Eleventh Circuit.

A man was behind in paying his domestic support obligations, or DSOs. He confirmed a chapter 13 plan providing for the trustee to pay the arrears in full while he would directly pay future obligations in full.

To recover the arrears after confirmation, the state garnished his travel reimbursement from his employer. The bankruptcy court held the state in contempt for violating the confirmation order and assessed attorneys’ fees. The district court upheld the bankruptcy court.

Sitting by designation, Circuit Judge Eugene E. Siler, Jr. of the Sixth Circuit upheld the lower courts in his opinion for the Eleventh Circuit on Aug. 11.

Judge Siler was called on to resolve an ambiguity arising from the interplay of two sections of the Bankruptcy Code, exacerbated by the 2005 BAPCPA amendments.

As amended in 2005, Section 362(b)(2)(C) creates an exception to the automatic stay that, in practical effect, now allows garnishment of post-petition income to pay DSOs after the filing of a chapter 13 petition.

Before BAPCPA, the provision only permitted attachment of property that was not property of the estate. Because post-petition income is property of a chapter 13 estate, the exception to the stay was essentially useless against a debtor in chapter 13.

The other provision at issue, Section 1327(a), makes a confirmed plan binding on creditors, whether or not they accepted or objected to the plan.

The state argued that BAPCPA was intended to remove any bar to the collection of DSOs. Judge Siler disagreed. He concluded that the exception to the automatic stay allows a DSO creditor to collect after a chapter 13 filing, “but that right ends after confirmation of the plan.”

Complete freedom to collect is not necessary after confirmation, when a DSO creditor has greater protections, Judge Siler noted. DSOs are nondischargeable, and DSOs must be paid in full in a chapter 13 plan.

He said there is no legislative history to suggest that Congress intended for the BAPCPA amendment “to abrogate the binding effect of Section 1327(a).”

Judge Siler went a step further. The bar against garnishment to collect a DSO need not have been actually litigated to be covered by res judicata. “The binding effect of a confirmed plan encompasses all issues that could have been litigated in [the debtor’s] case – including whether the [state] could intercept [the debtor’s] reimbursement,” he said.