Only temporarily, says the Eleventh Circuit Court of Appeals.
Bankruptcy lawyers all know how much of a pain it can be to deal with child support in a bankruptcy case. The reason for this is a relatively recent addition to the Bankruptcy Code – §362(b)(2)(C), which says that “domestic support obligations” (like child support and alimony) are excluded from the automatic stay, unlike most debts, which absolutely cannot be collected after the bankruptcy petition has been filed. What does this mean in practice? Well, if you owe alimony or child support and it is automatically being deducted from your paycheck by DHR or a court order, then those deductions will continue even after the bankruptcy case has been filed.
Normal creditors don’t get to do this. So for instance, if you have a wage garnishment taking 25% of your paycheck, that MUST stop once you file bankruptcy, or the creditor deducting the money could potentially get into trouble.
So what can you do if the child support coming out of your paycheck is taking so much of your income that you can’t afford Chapter 13?
Well thanks to a recent decision of In re Gonzalez by the Eleventh Circuit Court of Appeals, you can propose a Chapter 13 plan which pays your child support creditors in full, and if the judge confirms the plan, then the wage garnishments or payment intercepts have to stop.
So how did the Court get around 11 U.S. §362(b)(2)(C)? They didn’t. Instead, they looked to Section 1327 of the Bankruptcy Code, which says that the terms of a confirmed plan are binding on all creditors. So once the judge enters that confirmation order, the domestic support creditors – like everyone else – are stuck with the plan, even if it says they have to stop direct wage withholding and take payments through the Chapter 13 Trustee.
The best news? The Court in Gonzalez held that the Florida Department of Revenue was in contempt of court for taking the debtor’s money after his Plan was confirmed, and they made the DoR pay his money back and pay attorneys’ fees.
This is a very important decision for struggling debtors who need a short break from garnishments to find relief in Chapter 13. Let’s hope that the Supreme Court doesn’t overturn it.