By Ryan C. Wood
It recently came to my attention that there is a misconception about child support arrears and other priority claims in chapter 13 bankruptcy cases. This is not about current ongoing child support payments but the missed payments as of the date the case is filed or other priority claims pursuant to Section 507 of the Bankruptcy Code. Yes, it is a priority debt. No, child support arrears do not absolutely have to be paid in full depending upon the circumstances. This is also true of any and all claims with priority pursuant to Section 507 of the Bankruptcy Code: bankruptcy attorney fees, taxes owed…… Yes this is true.
Section 1322(a)(2)
This is about the holder of the claim and what they agree to. The plain language of Bankruptcy Code Section 1322(a) is your friend. Sadly the plain language of many laws are not followed but in this case there is no ambiguity to there are no issues. That does not mean some single human out there in a position to make a determination that is wrong or not consistent with the plain language of Section 1322(a)(2): (a) The plan shall – (2) provide for the full payment, in deferred cash payments, of all claims entitled to priority under section 507 of this title, unless the holder of a particular claim agrees to a different treatment of such claim.
It sound so very simple but in practice can be very complicated. But yes, I have gotten the Internal Revenue Service and a county child support service to agree to less than full payment of their priority claim pursuant to Section 507. Just create a supplemental agreement to file in the case. The problem will most likely be the Chapter 13 trustee assigned to your case given they may never have had to deal with this section of the Bankruptcy Code used. I have unfortunately had to include special language in the Chapter 13 Plan that arguably is unnecessary to satisfy the Chapter 13 trustee so they could recommend confirmation or approval of the Chapter 13 Plan. I could have argued about in a confirmation hearing and let the bankruptcy judge decide who is right but what for? That is more or less a waste of time and resources. You may have to do that though if your Chapter 13 Trustee cannot administer what you propose or refuse to administer the plan as you propose.
Section 1322(a)(4)
Again the plain language of Section 1322(a)(4) is your friend: (a) a plan shall – (4) notwithstanding any other provision of this section, a plan may provide for less than full payment of all amounts owed for a claim entitled to priority under section 507(a)(1)(B) only if the plan provides that all of the debtor’s projected disposable income for a 5-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan. Section 507(a)(1)(B) provides: (a) The following expenses and claims have priority in the following order; (1) First: (B) Subject to claims under subparagraph (A), allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition are assigned by a spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit under applicable nonbankruptcy law, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition be applied and distributed in accordance with applicable nonbankruptcy law.
If all of the monthly disposable income is being paid into the plan and the child or domestic support arrearage claim is held by a governmental unit then the claim does not have to be paid in full during the life of the Chapter 13 Plan. This is also not going to be so simple depending upon the circumstances. Your jurisdiction may not have a good model plan that includes language like this to begin with or the Chapter 13 Trustee in your jurisdiction may not know how to administer what you propose. To make easy for them even though you should not have to do this create a special provision that provide how much of the claim will be paid through the Chapter 13 Plan so you give them a number they can enter into their system and hopefully administer better than leaving it up to them to create the amount to be paid. Even though we have the Supreme Court of the United States Espinoza case the Chapter 13 Trustee will probably also want you to provide in a special provision the unpaid portion of the priority claim not being paid is not discharged upon completion of the Chapter 13 Plan even though by operation of law it is not dischargeable.
Bankruptcy Code Section 1322(a)(2) + Section 507 + Section 503(b)(2)
For those of you that are bankruptcy attorneys now apply Section 1322(a)(2) to attorneys’ fees awarded pursuant to Section 330(a)(B)(4) and read Section 507 of the Bankruptcy Code in conjunction with Section 503(b) very carefully. There is no ambiguity so the plain language rules the day. Then think about whether there is an order entered in your jurisdiction approving your no looks fees and whether that order reference Section 330(a)(B)(4)? Your statutory right to payment created by Congress and signed into law by the President of the United States in 1994. If no Bankruptcy Code section is provided what then governs enforcement or grant of your right to payment for no look fees upon confirmation of the Chapter 13 Plan in your jurisdiction?
