This topic contains information on the following subjects:
A noncustodial parent's filing of a bankruptcy petition with the United States Bankruptcy Court and the disposition of that petition affect the collection of funds and the enforcement of child support orders by the CSS agency. CSS attorneys can access bankruptcy court information through the PACER (Public Access to Court Electronic Records) web site: "http://www.pacer.gov/". PACER is available to anyone who registers for an account; however, a fee is charged to access court documents.
Regardless of the date of filing, caseworkers MUST notify the CSS attorney when an NCP files a bankruptcy petition. The attorney should contact the bankruptcy trustee or the NCP's bankruptcy attorney and determine if a Proof of Claim should be filed with the bankruptcy court.
If a bankruptcy petition was filed PRIOR to October 17, 2005, an automatic "stay" prohibits creditors from attempting to collect debts of the individual, unless the collection is "approved" by the bankruptcy plan. The automatic stay normally lasts until the end of the bankruptcy process.
Bankruptcy laws specify a priority system for the collection of debts; some debts can be discharged upon successful completion of the bankruptcy matter. Prior to October 17, 2005, claims for child support and spousal support were assigned priority number seven (7). Effective October 17, 2005, P.L. 109-8 makes child support a priority number one (1).
Additionally, a child support debt owed either to the custodial parent or to the State is exempt and, therefore, not dischargeable by the bankruptcy court. (Discharging a debt releases the debtor from personal liability for certain specified types of debts, and the debtor is no longer required by law to pay any debts that are discharged.)
For any case with an NCP who filed bankruptcy prior to October 17, 2005, CSS is considered a creditor and is prohibited from taking action to collect support until the stay is lifted or the bankruptcy process is complete. For more information, see “Bankruptcy Policy – Prior to 10/17/05”.
Effective October 17, 2005, CSS is not always bound by the automatic stay. The new bankruptcy legislation allows that actions to establish paternity and actions to establish or modify child support are exempt from such automatic stays. Some restrictions that the Bankruptcy Court imposed on collection activities have been relaxed; however, some restrictions continue to apply. For more information, see “Bankruptcy Policy - On/after 10/17/05”.
Chapter 7 bankruptcy is called a "straight bankruptcy" or "liquidation". Most debtors who file a Chapter 7 bankruptcy have few assets that can be distributed to creditors. The bankruptcy trustee reduces any available assets to cash and uses it to pay off the debtor's creditors.
Chapter 11 bankruptcy is called a "reorganization". It is filed by individuals or businesses who need time to restructure or scale back their business.
Chapter 13 bankruptcy is called a "wage earner plan". It is a court-supervised installment payment plan that does not require the approval of creditors. The debtor seeks the guidance of a bankruptcy trustee to devise and carry out a plan to make payments to the trustee, who pays this money to creditors. The plan can call for either full or partial payment of the debts owed.
A bankruptcy filing (whether before, on, or after October 17, 2005) can be beneficial to CSS's efforts to collect child support, since the petitioner must disclose his/her full financial situation to the court, including all assets and liabilities.
In Chapter 13 filings, the bankruptcy trustee oversees all payments, since the NCP is required to keep all post-petition payments current so that the bankruptcy plan remains valid. In a bankruptcy case, the bankruptcy trustee also has the duty to provide information about a domestic support obligation and the CSS agency. A "domestic support obligation" is defined in part as "a debt that accrues before, on, or after the date of an order of the bankruptcy court and that is owed to a spouse, former spouse, child of the debtor or such child's parent, legal guardian, or responsible relative or a governmental unit in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child's parent."
Once the trustee is aware that a domestic support obligation exists, the trustee has certain responsibilities which include:
After the bankruptcy petition has been successfully completed, the CSS agency can contact a creditor listed in the petition who still holds a claim or debt and request that the creditor reveal the NCP's last known address.
Due to changes in legislation (P.L. 109-8, effective October 17, 2005), CSS caseworkers must know the date when a bankruptcy petition was filed in order to determine the appropriate policy to follow and actions to take.
When local CSS is notified by the bankruptcy court or any other source that a noncustodial parent (NCP) has filed a bankruptcy petition prior to October 17, 2005, all establishment and enforcement activities must be stopped. The responsible caseworker should make a request for the CSS attorney to determine the status of the bankruptcy. The attorney should be advised of the bankruptcy petition file date and of any ongoing or planned IV-D actions in the case (such as pending court action, income withholding, or tax intercept.) The attorney determines if CSS was listed as a creditor, included in a Chapter 13 payment plan, or whether the trustee objects to having the automatic stay lifted so that CSS can establish, collect, or enforce support.
In Chapter 7 cases, the time between filing the petition and a successful completion of the bankruptcy matter is about three to four (3-4) months. It might be advisable to honor the stay and wait until completion of the bankruptcy to begin collection of the child support debt (which is not dischargeable in bankruptcy.)
In a Chapter 13 case, the stay can last from three (3) years to five (5) years, so a motion to lift the stay is worthwhile. This motion requires no filing fee. Prior to October 17, 2005, North Carolina courts had ruled that to include child support payments in the Chapter 13 plan would be unfair to children and protect the NCP from having to make payments when due. Also if child support was included in the plan, the bankruptcy court would attempt to modify the arrearages.
The bankruptcy court should be made aware of a child support obligation, even though it is preferable that the child support payment be made outside the plan. Upon notification that the petition for bankruptcy has been dismissed or denied or that the terms of the order have been fulfilled, CSS can proceed with any appropriate establishment or enforcement actions.
All enforcement actions currently in effect or being planned for an NCP who filed a petition for bankruptcy prior to October 17, 2005 must cease if the bankruptcy status is active and the automatic stay has not been lifted.
Until the CSS attorney has notified the caseworker that appropriate approval or permission of the bankruptcy court has been granted, no enforcement actions should be taken, including delinquency letters, telephone calls, contempt actions, income withholding, liens, and tax intercept. Any unapproved actions that CSS takes against the NCP after learning of an active bankruptcy petition filed prior to October 17, 2005, could result in a finding of contempt by the bankruptcy court.
NOTE: The bankruptcy court often allows income withholding for the ongoing support obligation; however, collection of arrearages could be postponed until a later date.
If the NCP was certified for tax intercept prior to the filing of the bankruptcy petition (and the petition was filed prior to October 17, 2005), his/her name should not be deleted until the bankruptcy court's ruling is made, since the court might also allow tax intercept.
NOTE: If an NCP filed a bankruptcy petition prior to October 17, 2005, the arrearages that accrued up to the filing date of the petition MUST CONTINUE TO BE EXCLUDED from the tax intercept process until the stay is lifted or the bankruptcy is complete.
If the last opportunity to delete the NCP from tax intercept has passed, inform the CSS attorney to make the bankruptcy court aware of the certification and that if required by the court, any refund received by CSS is returned when received.
When ACTS receives Federal/state tax intercept money for an NCP who has filed bankruptcy prior to October 17, 2005, ACTS notifies the Tax Intercept Unit worker and any local CSS caseworkers who have the NCP as a part of their caseload that money has reached the system. This money will be held for six (6) months at the NCP's account level, if the bankruptcy petition was filed prior to October 17, 2005.
The local caseworker should provide the Tax Intercept Unit worker with the name and address of the trustee for the bankruptcy case. If the bankruptcy ended or the stay has been lifted, either worker can allow the money to be distributed among the case(s) or refunded to the NCP.
Bankruptcy legislation (P.L. 109-8) is specific to bankruptcy petitions that are filed on or after October 17, 2005. It is not retroactive.
Until lifted, the "automatic stay" still applies to some child support enforcement remedies. CSS caseworkers CANNOT:
The "automatic stay" does not apply to many other child support establishment and enforcement remedies. CSS workers CAN pursue the following actions without requesting that the "automatic stay" be lifted by the bankruptcy court:
NOTE: If a bankruptcy petition that was filed before October 17, 2005 is still active, caseworkers can use these remedies for any arrearages that accrued on or after October 17, 2005.
The bankruptcy court can dismiss the bankruptcy petition and/or payment plan if the NCP fails to make ALL his/her child support obligations in full and on time, while in a Chapter 13 payment plan. Once the payment plan is completed under either Chapter 7 or Chapter 13, some of the NCP's debts can be discharged. Child support debts to the state or to the custodial parent are not dischargeable. Prior law allowed debts owed to the state to be discharged.
For questions or clarification on any of the policy contained in these manuals, please contact your local county office.