Once a bankruptcy case is filed, the bankruptcy automatic stay stops creditor collection action and provides the debtor some temporary breathing room in order to restructure personal finances. There are limits to this protection, however. One of the most common exceptions during a Chapter 13 bankruptcy case concerns collection and enforcement of domestic support obligations (DSO), such as child support and alimony.
The Bankruptcy Code allows two ways to enforce and collect a DSO after the debtor has filed bankruptcy:
- Section 362(b)(2)(B) allows “the collection of a domestic support obligation from property that is not property of the estate.”
- Section 362(b)(2)(C) allows actions “with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute.”
When a DSO is enforced through a state court contempt action, the bankruptcy court first considers whether the DSO is collected or enforced from property of the bankruptcy estate. The debtor’s property is part of his bankruptcy estate, such as bank accounts, vehicles, and real estate. Wages and other income streams are also property of a Chapter 13 debtor’s bankruptcy estate. Consequently, when a state court holds a Chapter 13 debtor in contempt, the exception at issue is usually Section 362(b)(2)(C), which permits enforcement or collection from property of the bankruptcy estate.
When a state court seeks to hold a debtor in contempt for non-payment of a DSO, the critical question is whether the DSO involves a judicial or administrative wage garnishment. Appellate courts have found that enforcement through state court contempt violates the bankruptcy automatic stay if the debtor is compelled to pay a DSO during bankruptcy where there is no garnishment or other wage withholding order. See In re DeSouza, 2013 WL 2991034 (1st Cir. B.A.P. 2013); Lawinda v. Seyffer (In re Lewinda), 2011 Bankr. LEXIS 4299 (B.A.P. 9th Cir. Aug. 1, 2011). Note that some lower courts have permitted enforcement of a DSO through contempt on bankruptcy estate property without a wage withholding order, so long as there is a court or administrative order establishing the obligation. See In re Powers, 2010 Bankr. LEXIS 825 (Bankr. S.D. Ind. Mar. 12, 2010); In re Friedberg, 2009 Bankr. LEXIS 1542 (Bankr. D. Conn. May 8, 2009)).