BANKRUPTCY: HOW DOES IT EFFECT THE COLLECTION OF CHILD SUPPORT

1. BANKRUPTCY:HOW DOES IT EFFECT THE COLLECTION OFCHILD 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 ERICSA 50 CELEBRATES YEARS OF SERVING FAMILIES: THE MAGIC IS STILL ALIVE ERICSA ERICSA ERICSA ERICSA ERICSA

2. 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?

3. 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?

4. 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.)

5. 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.

6. 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).

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. Proof of Claim

14. Proof of Claim

15. Proof of Claim

16. Proof of Claim

17. Proof of Claim

18. Proof of Claim

19. Proof of Claim

20. 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).

21. Appearance of Child Support Creditor or Representative.

22. Appearance of Child Support Creditor or Representative.

23. Appearance of Child Support Creditor or Representative.

24. Appearance of Child Support Creditor or Representative.

25. Appearance of Child Support Creditor or Representative.

26. 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.

27. Moving to Offense • Debtor’s must stay current with child support obligations throughout a bankruptcy case or the case is subject to dismissal.

28. GO FORTH AND DO GOOD!!! Thank you ! Frederick F. Rudzik Chief Assistant General Counsel Florida Department of Revenue Bankruptcy Unit rudzikf@dor.state.fl.us