The 2005 amendments may not have given much protection for the collection of domestic support obligations, or DSOs, from someone in chapter 13, judging from an Aug. 8 decision by Bankruptcy Judge John S. Dalis of Brunswick, Ga., combined with a decision last week from the Eleventh Circuit.
A former wife filed a contempt motion in state court to compel payment of DSO arrears. Two weeks before the contempt hearing, the former husband filed a chapter 13 petition. Although neither the husband nor his lawyer appeared, the contempt hearing went ahead, with the state court directing incarceration of the husband should he not pay the arrears. The court also awarded about $750 in attorneys’ fees and costs to the wife’s attorney.
When the wife’s lawyer filed a claim for the $750, the debtor objected, contending that the contempt proceedings violated the automatic stay. Judge Dalis agreed in an opinion on Aug. 8, holding that the hearing and the contempt order were both void.
Since pre- and post-petition assets are assets of the estate under Section 1306(a), Section 362(b)(2)(B) does not provide an exception to the automatic stay because that provision only allows “collection” of DSOs from “property that is not property of the estate.”
It was a closer question whether the contempt proceedings were exempted from the stay under Section 362(b)(2)(C). That subsection makes the stay inapplicable to “withholding of income that is property of the estate or property of the debtor.”
Although at least one bankruptcy court expressed another view, Judge Dalis decided that contempt proceedings before confirmation were not excepted from the stay. Before confirmation, he said that the exception was “plainly” limited to existing wage garnishment orders. He added that the wife was seeking immediate payment, not withholding of income.
Judge Dalis’ opinion might be read to mean that the wife could have sought a wage garnishment order without violating the stay.
Section 362(b)(2)(C) was added in the 2005 BAPCPA amendments because the exception to the stay in subsection (b)(2)(B) was virtually worthless in chapter 13 since pre- and post-petition property is property of a chapter 13 estate.
As further evidence that the amendment has limited utility, we reported an Eleventh Circuit opinion yesterday holding that the exception to the automatic stay allowing garnishment of wages to pay a domestic support obligation ceases on confirmation of a chapter 13 plan. To read about State of Florida Dept. of Revenue v. Gonzalez (In re Gonzalez), click here.