Fall 2013: Alimony and Bankruptcy

By Alan Pransky 

When a person files bankruptcy their creditors frequently think that they can't collect any money.  However, when it comes to alimony and child support, a bankruptcy filing could be the best thing that could happen.  On the other hand, if the person seeking to collect alimony makes the wrong move, the consequences can be very severe.

When a person files bankruptcy they have to file detailed schedules that list all assets, expenses, income, and debts.  The information provided is similar to probate court financial statements but the organization and details are different. The filing also results in the appointment of a Trustee in bankruptcy to administer the estate.  This trustee has fiduciary duties to both the person who files bankruptcy and the people that are owed money.  The trustee may cooperate to collect child support and alimony. 

Alimony and child support are called “domestic support obligations” under bankruptcy law. These are protected debts under the bankruptcy code. The person filing bankruptcy must disclose the existence and status of domestic support obligations when filing bankruptcy. Failure to accurately provide this information may result in a dismissal of the bankruptcy.  Bankruptcy court must address any arrears for any domestic support obligations as part of the bankruptcy process.  The Trustee is charged with investigating the truthfulness of the schedules filed.  I recommend comparing the most recent probate court financial statement with the bankruptcy schedules.  This can reveal assets or income omitted from the bankruptcy filing.  You can provide information and questions to the Trustee.  You may also provide documents.  Since financial statements are impounded by probate court, you may need an order from Probate Court before you provide a copy of the financial statement to the Trustee.  The sworn financial statement may be a powerful tool for the Trustee. 

The recipient of alimony or child support is not limited to working within bankruptcy court to collect money.  They can also take actions outside in state court.  However, some traditional methods of collection of support are prohibited by the bankruptcy filing.  There can be severe sanctions for taking an action that violates the bankruptcy automatic stay.  Bankruptcy sanctions may be assessed against any person who brought a prohibited action in state court and who asked the family court judge to take a prohibited action against the debtor.

A recent case explains what actions can be taken outside bankruptcy court.  In the case of In re Claudinei Desouza, Bankruptcy Case No. 11-40315-MSH (BAP 1st Circuit 2013) the recipient of alimony payments filed a contempt action in family court. The contempt resulted in a finding that the debtor had failed to pay alimony and he was arrested and held in jail until he paid money as ordered by the state court. The Bankruptcy Appeals Court held that the spouse who filed the contempt violated bankruptcy law and was subject to sanctions for her actions. Specifically, the Court found that the spouse could not file a complaint for contempt and could not have the debtor arrested.

When a person files bankruptcy and owes alimony there are five things that can be done by the spouse or ex-spouse relating to alimony. Three of these are in state court and two are in bankruptcy court.

According to the Desouza decision, the following are three actions that a person can take in state court regarding alimony after the other spouse has filed bankruptcy: First, the person can ask state court to establish or modify an order for alimony. Second the person can ask state court to collect alimony from property that is not property of the bankruptcy estate. Finally the person can ask the state court to withhold income that is property of the bankruptcy estate or other property of the debtor for payment of alimony.

In addition to the three actions that can be taken in state court, there are two actions that can be taken in bankruptcy court: An appearance can be filed listing the money owed for alimony and an adversary proceeding can be filed seeking the right to take other actions in state court such as filing a contempt.

Establishing an order for alimony can occur in a divorce proceeding or a modification of divorce action. Filing either of these actions or prosecuting them does not violate the automatic stay of bankruptcy court.

Collecting alimony from property that is not the property of the bankruptcy estate can be risky. The problem is to determine what property is not part of the bankruptcy estate. Any mistake can have serious consequences for the recipient of alimony. It is best to have the advice of a bankruptcy attorney before trying to determine what is included in the bankruptcy estate.

In Massachusetts, requesting Family Court to issue an order to withhold income for the purpose of paying alimony is not a simple matter if you can't file a contempt complaint. Unlike child support, the Department of Revenue won't collect alimony and won't use their administrative powers to withhold income. The normal procedure in which to ask the court to order the collection of alimony is a contempt action. However, a contempt can't be filed without permission of bankruptcy court. An attempt to withhold income can be made in a divorce or modification action. Based on my experience in Massachusetts Courts, the court is unlikely to order such relief without a contempt action.

In most instances, it is best to seek remedies in both state court and bankruptcy court. Bankruptcy court requires that a person who files bankruptcy to file an affidavit that sets forth an obligation to pay alimony and to certify if the payments are current. The recipient of alimony has the right to file an appearance in bankruptcy court that details the same information. The proper form to use is B 281. If there is a difference between the filing by the debtor and the recipient of alimony, then the Trustee in Bankruptcy should take steps to determine the correct amounts. If the bankruptcy estate has assets, then the Trustee should take additional actions to pay the alimony. Form B 281 can be filed by a person or their attorney. Once filed, it gives the person the ability to participate in the bankruptcy proceeding.

The other action that can be taken is to file an adversary proceeding in bankruptcy court and ask the court for permission to take additional actions in state court such as the filing of a contempt complaint. Bankruptcy code explains when it is appropriate to file such an action. Consult a bankruptcy attorney before starting an adversary proceeding.

When it comes to bankruptcy matters, state court won't provide bankruptcy advice and may take actions that are prohibited by bankruptcy law.   A state court judge won't be the subject of sanctions by bankruptcy court if the judge makes an order that is not allowed by bankruptcy law.  Instead, bankruptcy court will punish the person who requested the action.   Bankruptcy filings mean that a party should proceed with caution when seeking relief in state court.

Alan J. Pransky is a sole practitioner with an office in Dedham.  His practice concentrates in family law, real estate law, and litigation.  Mr. Pransky has been an adjunct professor at Newbury College, and has adjudicated in Moot Court Law Competitions and conducted many continuing education seminars.  Mr. Pransky graduated from Syracuse University College of Law and received a Bachelor of Arts Degree from the University of Massachusetts.

Mr. Pransky is admitted to practice in Massachusetts, the District Court for Massachusetts, the 1st Circuit Court of Appeals, and the U.S. Supreme Court.  He is on the Board of Directors of the Norfolk Law Library Foundation and is a member of the Massachusetts Bar Association, the Real Estate Bar Association of Massachusetts, and the American Civil Liberties Union.  Mr. Pransky recently chaired a program at MCLE entitled Practicing Family Law in the Age of Facebook® & Computer Spying: MCLE Family Law Briefing