New Bankruptcy Legislation Offers Increased Protections To Those Receiving Support Obligations

Tags: , , ,

On April 20, 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCA”). BAPCA, set to take full effect on October 17, 2005, will have wide-reaching effects on all people seeking protection under both Chapter 7 and Chapter 13 of the Bankruptcy Code.

Although the legislation has been widely criticized because of its stricter requirements on debtors seeking relief (such as the “means test” where those debtors with an income above the state median may be forced out of Chapter 7 regardless of debt), the BAPCA has significantly increased the protections to people who receive support payments from a debtor who is filing for bankruptcy. The new legislation has broadened the definition of “domestic support obligations” (the current law only includes support obligation such as alimony and child support, where the BAPCA also includes non-support obligations such as property settlements) and has made those obligations entirely non-dischargeable through the bankruptcy process. Now both support obligations and non support-obligations owed to a child’s parent, legal guardian, responsible relative, or a government agency are entirely non-dischargeable. This ultimately means that those people filing bankruptcy with the primary objective of avoiding payment on a domestic relations obligation will be unable to do so. Additionally, the BAPCA has increased the repayment priority of domestic support obligations from the seventh priority to the first priority. Thus, if there are significant areas on a support obligation, the person owed the obligation will be first in
line for repayment.

The BAPCA represents a sweeping change to the Bankruptcy Code. Although there are both critics and proponents alike, the legislation has significantly increased protections for those persons receiving payments and support through a domestic relations proceeding.