BANKRUPTCY CORNER
BANKRUPTCY CORNER
Proceed with Caution When Enforcing Your DSO Claim Against a Debtor
JASON S . RIGOLI
Former spouses and dependents entitled to domestic support are provided with certain favorable treatment under the Bankruptcy Code . Some of the favorable treatment includes exceptions to automatic stay , one of the fundamental debtor protections of bankruptcy . As with everything , there are limits .
The automatic stay is found in § 362 ( a ) of the Bankruptcy Code . 11 U . S . C . § 362 ( a ). As the name suggests , the stay becomes effective , automatically , upon the filing of a bankruptcy petition . Id . Generally , the automatic stay operates to stay the commencement , continuation , or enforcement of debt obligations against property of the estate , the debtor , or property of the debtor . 11 U . S . C . § 362 ( a )( 1 ) - ( 8 ).
Section 362 ( b )( 2 )( B ) of the Bankruptcy Code provides the exception to the automatic stay for “ the collection of a domestic support obligation from property that is not property of the estate .” 11 U . S . C . § 362 ( b )( 2 ) ( B ). What is the breadth of this exception ?
In a recent decision the breadth of this exception was tested . See Evans v . Evans ( In re Evans ), 2023 U . S . Dist . LEXIS 46397 ( W . D . Va . Mar . 20 , 2023 ). In Evans , the debtor-former husband filed a chapter 13 petition and confirmed a 60-month plan to which the former wife consented . Under the marital distribution agreement signed before bankruptcy , the debtor owed his former wife $ 212,500 . Before bankruptcy , he was to make a lump sum payment of $ 135,000 plus $ 1,000 a month until the entire $ 212,500 was paid . Id . * 2-3 . On filing , the debtor was allegedly current on the $ 1,000 monthly payments but was about $ 35,000 behind on the $ 135,000 lump sum payment that he should have made to his former wife before filing . As part of the matrimonial award , the debtor was required to have the former wife removed from liability to a bank resulting from a deficiency judgment arising from the foreclosure of their home .
Nine days after confirmation of the plan , the wife moved in the matrimonial court to hold the debtor in contempt and put him in jail unless he could show the court that he had made certain payments and that the former wife was no longer liable to the bank for the deficiency . Id . at * 3-5 .
The debtor went to bankruptcy court seeking to hold the former wife in contempt . Contending that she was only attempting to “ collect ” a domestic support obligation from non-estate property , the former wife argued that there was no stay violation in view of § 362 ( b )( 2 )( B ).
The court in Evans looked to the language of § 362 ( b )( 2 )( B ) of the Bankruptcy Code and specifically at “ collect ” and “ property that is not property of the estate .”
First , the court compared the use of the term “ collect ” versus ” enforce ” in several other exceptions to the automatic stay and found that “ collection ” was something narrower than “ enforcement .” In that , the Evans court found that the civil contempt proceeding is more accurately described as a “ ‘ commencement … of a civil action or proceeding ’ ” to “ enforce ” the Property Settlement and Separation Agreement . Id . at * 15-18 .
Second , the court found that the wife ’ s action was not limited to “ property that was not property of the estate .” Id . at * 18 . “[ T ] her contempt proceeding was not an action against an asset or other isolated item of property outside the estate but , rather , was an action against [ the debtor ] himself — seeking an order that he be compelled to take certain action in compliance or face jail time .” Id . at * 19 .
Accordingly , the Evans court affirmed the bankruptcy court ’ s finding that the non-debtor , former wife had intentionally violated the automatic stay .
Conclusion
As with most actions in which there is a question of whether the automatic stay
would be violated , it is better to ask for permission than for forgiveness , because forgiveness can come with a hefty price tag .
This article was submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
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