BANKRUPTCY:
HOW DOES IT EFFECT
THE COLLECTION OF
CHILD SUPPORT
Frederick F. Rudzik
Chief Assistant General Counsel
Florida Department of Revenue
ERICSA 50th Annual Training Conference & Exposition ▪ May 19 – 23 ▪ Hilton Orlando Lake Buena Vista, Florida
Bankruptcy: Help or Hindrance?
• Supreme Court stated bankruptcy laws should
not interfere with Child Support collections.
• Congress intended that the 2005 amendments
to the Bankruptcy Code would assist in efforts
to collect support obligations.
• The best of intentions do not always provide
an easy path to the desired results.
• What can CSE do to make it work?
What should we do when we learn
of a Bankruptcy filing?
• How did our agency learn of the filing?
• At what stage is the bankruptcy case?
• Under what chapter was the bankruptcy filed?
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 7
• Case may be asset case or no asset case.
• For asset case, proof of claim should be filed.
(As a first priority creditor, child support claim
will receive payment after estate expenses.)
• For no asset case, no action is required.
(There will be no assets available for payment
of claims.)
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 7 (cont.)
• Collection under state law should continue
against bankruptcy debtor in all chapter 7
cases.
• Prior to any distribution from asset case,
trustee should be notified of any payments
received which have been credited to Claim
amount.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13
• Know your local trustees and their preference.
• In house determination of bankruptcy
involvement must be made.
(a) Collect only through state means.
(b) Collect only through bankruptcy plan.
(c) Collect using a hybrid of (a) and (b).
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13 (cont.)
Pros and Cons of your decision:
(a) Collect only through state means.
+ No interruption of Collection activity
- Payments may continue longer than
five years.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13 (cont.)
Pros and Cons of your decision:
(b) Collect only through bankruptcy plan.
+ If plan completes, payment by trustee
within five years without additional effort.
- If plan fails, there will be a delay from
last bankruptcy payment until close of the
bankruptcy case, causing missed
payments.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13 (cont.)
Pros and Cons of your decision:
(c) Collect using a hybrid of (a) and (b).
+ Payment of all arrears within five years
without interruption of payments already
being received.
- Requires active participation in
bankruptcy case to a greater degree.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13 (cont.)
Choosing to receive payments from the
bankruptcy estate requires the filing of a Proof
of Claim just as required to receive payment
from a chapter 7 estate.
In all cases, debtor’s plan should be
reviewed for treatment of child support
obligations.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 12 or 13 (cont.)
Where objectionable language is
contained in a proposed plan, an objection must
be filed or the plan’s provision becomes binding.
Failure of debtor to pay ongoing support
under state law is grounds for dismissal of
bankruptcy case.
Why does the chapter under which
the bankruptcy was filed matter?
Chapter 11
Chapter 11 cases involving child support
are rare but must not be overlooked.
Many rules applicable in chapter 13 cases
also apply for chapter 11.
Proof of Claim
Proof of Claim
Proof of Claim
Proof of Claim
Proof of Claim
Proof of Claim
Proof of Claim
What happens when an objection
to a claim is filed?
• Generally, objections to child support claims
will only effect the amount received from the
bankruptcy estate and will not alter debtor’s
personal obligation.
• Child Support is State, not Federal Jurisdiction.
• Child Support Creditors may appear in
Bankruptcy Court even if not an attorney.
Pub.L. 103-394, Title IV, §304(g).
Appearance of Child Support
Creditor or Representative.
Appearance of Child Support
Creditor or Representative.
Appearance of Child Support
Creditor or Representative.
Appearance of Child Support
Creditor or Representative.
Appearance of Child Support
Creditor or Representative.
Defending Adversary Proceedings.
• Generally violation of automatic stay,
discharge injunction, or provision of
confirmed plan.
• Review Exceptions to Automatic Stay.
• Child Support Not DISCHARGEABLE!!!
• Injunction must be clear and unambiguous.
Moving to Offense
• Debtor’s must stay current with child support
obligations throughout a bankruptcy case or
the case is subject to dismissal.
GO FORTH AND DO GOOD!!!
Thank you !
Frederick F. Rudzik
Chief Assistant General Counsel
Florida Department of Revenue
Bankruptcy Unit
[email protected]