Enforcing Domestic Support Obligations In Bankruptcy Court

Palm Beach County Bar Association Bulletin, July/August 2007

In the September, 2006 edition of the Palm Beach County Bar Association Bulletin, I described some of the changes resulting from the October, 2005 enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and their impact on the family law practitioner. One of the changes described in the article was the apparent authority of a Chapter 7 bankruptcy trustee to liquidate exempt property for the benefit of a domestic support obligation1 (“DSO”) creditor. This apparent authority was created by the amendment to 11 U.S.C. § 522(c)(1). Following the September, 2006 publication, four bankruptcy courts have found that the bankruptcy trustee has no such authority.

The four bankruptcy courts which have spoken on the issue unanimously held that the existence of a DSO creditor does not provide for the disallowance of an exemption, rather, it provides that property exempted by the debtor is nonetheless liable for a DSO. Therefore, a trustee may not liquidate exempt property in order to pay a domestic support obligation. See, In re Covington, 2006 WL 2734253 (Bankr. E.D. Cal.); In re Ruppel, 2007 WL 108941 (Bankr. D. Or.); In re Vandeventer, 2007 WL 1175734 (Bankr. C.D. Ill.); In re Quezada, 2007 WL 438258 (Bankr. S.D. Fla.).

Notwithstanding the Chapter 7 bankruptcy trustee’s inability to liquidate exempt property for the benefit of a DSO creditor, at least one bankruptcy judge has found that a DSO creditor can enforce its claim against exempt property in the bankruptcy court. In Quezada, Judge Mark, from the Southern District of Florida, Miami Division, found that although a bankruptcy trustee cannot administer exempt property, the bankruptcy court is not deprived of jurisdiction under 28 U.S.C. §1334(b) if the DSO creditor seeks to enforce its claim against exempt property in the bankruptcy court. Quezada at 4.

Although the four bankruptcy court cases cited above consistently find that a bankruptcy trustee may not liquidate exempt assets in order to enforce a DSO, DSO creditors appear to have a new avenue in enforcing DSO claims by doing so in the bankruptcy court. For instance, a DSO creditor may now be able to force a sale of exempt assets, such as a homestead, in the bankruptcy court to satisfy a DSO rather than relying upon the traditional contempt powers available in state court.

1. A domestic support obligation is defined at 11 U.S.C. §101(14A). A domestic support obligation essentially includes a debt in the nature of alimony, maintenance or support owed to or recoverable by a spouse, former spouse, child or governmental unit.