H.R. 975 Flunks the Common-sense Test When It Comes to Child Support

Written by:
Hon. Margaret Dee McGarity
Chief Judge, U.S. Bankruptcy Court
Eastern District of Wisconsin; Milwaukee
margaret_d_mcgarity@wieb.uscourts.gov

"We do God's work. We collect child support." The first time I heard that at an NCSEA (National Child Support Enforcement Association) convention several years ago, I marveled at such job dedication. But with the record some parents in this country have with respect to how they support their children, it is good that someone else feels strongly that these children are taken care of. Of course, this does not address the parents who give these children life and leave without a backward glance. Or who question paternity after the child has formed a bond of many years. Or who move them down in priority after rejecting the other parent, thus creating the "nose-pressed-against-the-window syndrome." But that is for another tirade.

The Federal Office of Child Support Enforcement keeps statistics on shameful things like accumulated unpaid child support and numbers of cases receiving payments or not receiving payments, along with government child support agency collection rates and other related information. Preliminary statistics for 2002 estimate approximately $92.3 billion in accumulated unpaid support, up from $88 billion in 2001.¹ One of the NCSEA conference attendees told me his office estimates that approximately two thirds of amounts due in their district are uncollectible, and that may be a good estimate nationwide. Collection of current support is up significantly in 2002, but still only about 68 percent of current orders are paid.² The U.S. Census Bureau also keeps records on child support, based on data collected in 2000 for calendar year 1999.³ Not surprisingly, the Bureau concludes that only about 15.1 percent of custodial parents that received all child support ordered lived at the poverty level, whereas 24.6 percent who received part of the support ordered were poor. Almost 30 percent who received no support were classified as poor.⁴ In other words, children are a lot better off if the noncustodial parent helps support the child.⁵

Enter child-support agencies, attorneys, support staff and others who work in the field of child support enforcement and collection on behalf of individuals or governmental units. They represent individuals in enforcing support orders, collecting reimbursement of public assistance of various types and enforcing orders under IV-D of the Social Security Act and other federal and state laws, UIFSA (Uniform Interstate Family Support Act), international treaties, tribal treaties and the like. The NCSEA provides education and support for enforcement personnel, dissemination of information concerning existing and proposed legislation, administration of programs and other matters generally intended to make such personnel effective and professional.

Most of the good people involved in this endeavor work for a governmental agency of some sort, and we know how generous such employers are about funding organizational dues and educational programs at remote locations—that is, not very. So since the NCSEA conference budget is not exactly lavish, ABI agreed to send me to Orlando, Fla. (in August!) to participate in panels involving interstate collections, teach basic bankruptcy law and distribute ABI's publication When Worlds Collide: Bankruptcy and Its Impact on Domestic Relations and Family Law.

When I teach bankruptcy law to people who don't often get into bankruptcy court, I have several goals. First, obviously, I want them to understand the basic concepts and procedures so they don't inadvertently run afoul of the automatic stay or bring about useless litigation. A frequent example of useless litigation is checking the priority box on the proof of claim when the claim is not entitled to priority, which I refer to as the "because-I-want-it-real-bad" priority, or the "because-my-cause-is-righteous" priority. A corollary of this first goal is to teach litigants how to obtain whatever relief the law allows in an efficient manner. The second goal is to demystify the bankruptcy court, because there are some otherwise nervy lawyers who won't set a big toe in a federal court—like to file a claim in a chapter 13 case, for Pete's sake. You would think sealing an envelope addressed to the bankruptcy court triggers hoofbeats of the U.S. Marshals, thundering down the hall to shoot up the office of the person so presumptuous as to communicate with their betters. Oh, yeah. Third, I would like to dispel the suspicion that bankruptcy courts are hostile to the collection of any debt, even a debt intended to support the debtor's children. How can a system that exempts one, and only one, type of creditor from filing fees for adversary proceedings and motions for relief from stay, not to mention exemption from special local rules regarding appearances by attorneys, be hostile to children?⁶ Finally, I would like for them to realize that not everyone who files a bankruptcy petition is a scofflaw out to dodge his/her child support obligation, and in fact, the bankruptcy may facilitate such payment. And nail down the scofflaws.

So I'd like to think I passed along a few practical tips, and I thank ABI for letting me try. The system always works better with trained participants, and children are better off when their advocates are effective. I find bankruptcy law both intellectually challenging and entirely practical, the latter being as important as the former. Preparing to teach current law on child support issues took me also to the inaptly named Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, H.R. 975, which passed the House but fortunately is held up in the Senate. If something close to H.R. 975 becomes law, it might in the future have an impact on the same issues I was preparing to teach, and this article grew out of that preparation. I realize I am by no means the first to weigh in on the issue,⁷ but perhaps the reader can stomach one more. If not, turn the page NOW.

I have been a long and lonely advocate of a method of drafting and proposing comprehensive legislation intended to address a perceived societal wrong. First, identify what is supposedly wrong with the current system: In this case, the proponents think too many people file for bankruptcy relief when they really don't need it. Next, see if it is possible to carefully tweak the current system to correct that wrong. I don't see why a few minor changes, such as to 11 U.S.C. §707(b), wouldn't be worth a try, but the proponents of legislative change wanted it big, so big it is. Finally—and this is the step they typically leave out—make up a few fact situations common to the people and entities subject to the law's impact. Make up a few uncommon fact situations, too. Apply the law as written, and assess the result. While you are at it, apply copious amounts of common sense and experience with human behavior.⁸ What happens to those affected? Is this what you were aiming for? Are there unintended results affecting those for whom the law was not intended? Such as the cost of good guys jumping through the hoops you intended only for the bad guys? If so, is the benefit greater than the detriment? Is there some way to correct the wrong you intend to correct without collateral ramifications (i.e., can you go back and not think so big)?

Much of what is in H.R. 975 is unobjectionable and could be classified as technical changes. Lien avoidance and preference protections for support are reworded. Added exceptions to the automatic stay include litigation concerning custody and visitation, dissolution of marriage and domestic violence. No problem. Interest on support claims? Still no problem. Requiring the payment of current support for any plan confirmation and for discharge after completion of a chapter 12 or 13 plan is a good idea. Likewise, requiring a five-year plan when full payment of support is not provided for is also fine. I don't even mind the exception for withholding of income for a "domestic support obligation" (more about that later) from property that is property of the estate (H.R. 975 §214), although I would limit that to earned income and to current support so arrearages can be dealt with by a chapter 12 or 13 plan. This is practical because it would allow payment of support by wage order to continue uninterrupted, notwithstanding the fact that earned income is property of the estate under 11 U.S.C. §§1207(a)(2) and 1306(a)(2). There is, after all, a provision for current support in the debtor's budget. However, a couple of the proposed new exceptions to the automatic stay defy common sense.

One of the new exceptions to the automatic stay would be the withholding, suspension, or restriction of a driver's license, professional or occupational license, or recreational license under state law or under the Social Security Act. This would be tolerable if the debt in question were excepted from discharge and the debtor has filed a chapter 7. But if the debtor is paying off the claim under a chapter 13 plan, what is the point? To keep the debtor from working as a nurse/barber/lawyer/whatever in order to fund a plan to pay the claim? If the debtor cannot work and cannot fund a plan, obviously the case will be dismissed, in which case the child support creditor will get to compete with the other creditors, whom the debtor cannot put off or discharge (unless chapter 7 is an option), for any crumbs the debtor is able to earn without the license.

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[T]o the extent we decide to participate in the legislative process by commenting from the sidelines, we can help, I hope, by demonstrating how a law might work in the real world.

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Perhaps the purpose of this provision is to force the debtor out of a chapter 13, which is an odd thing to put in a statute that generally encourages payment of debts. The priority system, even the current one, is hardly inadequate.⁹ Admittedly, secured creditors come ahead of the priority support creditors currently, but this is also true under the proposed law, and some secured creditors are even better off under the latter, thus decreasing support payments if it passes. If forced out of a job and out from under bankruptcy protection, of course, the collateral is just gone, and I am at a loss as to how that helps either the debtor or the support creditor. But with the debtor keeping licenses and being able to stay in a chapter 12 or 13, the plan trustee is collecting payments for three to five years, with five years being mandatory under the proposed law if support is not paid in full. This means the creditor will not have to keep chasing the payor, which has to be better for those trying to collect support. If I were collecting child support, I would be chasing payors into bankruptcy, not out of it.

Outside the bankruptcy system, a real hammer, like the denial of licenses, may be a plus. This is because those who enforce payment to commercial creditors are usually more numerous and better funded than the enforcers of child support, and any hammer is better than nothing. There are not enough IV-D attorneys to collect even the portion of the $92.3 billion in accumulated unpaid support that is collectible. But no matter how many hammers you have, if the commercial or consumer creditors get to the payor and his/her limited resources first, guess who gets paid? Again, keeping those commercial and consumer creditors under control, combined with the current or proposed priority system, enhances the collection of support. True, the proposed bill reduces this enhancement by increasing the categories of non-dischargeable consumer debt in chapter 7 and limiting cramdown on some secured debt in chapter 13, thus reducing the pool of assets available to support creditors, but the support creditor is still better off under a plan. Bankruptcy has both the carrot and the stick, not just the stick, in that a discharge from the other creditors is down the road if all disposable income is in the plan, and current support is paid.

Another proposed exception to the automatic stay would be the reporting of overdue support to a credit reporting agency. Once again, in the chapter 7 context, this is probably not a big deal, since the bankruptcy is on the credit report anyway. But it really makes no sense in the chapter 13 context, unless the goal is to punish rather than collect. After all, the support will be paid through the plan.

H.R. 975 adds the definition of "domestic support order."¹⁰ This definition eliminates the need for 11 U.S.C. §§523(a)(15) and (18), as pretty much any obligation that arises in the family law context is not subject to discharge.¹¹ Leaving aside the wisdom of excepting all property division obligations from discharge, let's address support obligations to governmental entities. Currently, 11 U.S.C. §523(a)(18) excepts from discharge obligations to governmental units that are for support and that are enforceable under IV-D of the Social Security Act. This picks up reimbursement for certain types of public assistance, but it does not include every kind of support provided by governmental units.¹² Now, let's think. Most people probably remember a family they have known, perhaps with four or five children, and one of those kids just wasn't quite right. All the others were fine, and home life was straight out of the Cleavers. If the one that wasn't quite right was different because of, say, a catastrophic accident and had horrendous medical bills, the parents could discharge those in bankruptcy, no questions asked. But if the different one's version of being not quite right was to assault other kids and rob gas stations, ending up in a restrictive residential facility, the family is in permanent penury. Granted, some parents should have their mangy hides nailed to the courthouse wall for the way they raised their kids, but this is not universal. The proposed change makes the dischargeability decisions easy, but it may not be the most humane policy.

The proposed bankruptcy law has some good points, some not so good, and some downright awful. It is too bad Congress will not pick out some noncontroversial good parts, pass those, and further debate the rest. But I realize that is not how politics works. Nevertheless, to the extent we decide to participate in the legislative process by commenting from the sidelines, we can help, I hope, by demonstrating how a law might work in the real world. If we advocate for or against particular legislation, we have to weigh the entire package, not just our pet issues. I believe the impact of this proposed law, as applied to the human situations I see every day, would be far more negative than positive. There must be a better way to stop only the people who need stopping, help only the people who need help, and leave everyone else alone.

Footnotes

¹ Association for Children for Enforcement of Support's web site is at www.childsupport-aces.org/facts.html. Return to article

² Id. Return to article

³ Grall, Timothy, "Custodial Mothers and Fathers and Their Child Support," Current Population Reports, U.S. Census Bureau (issued October 2002). Return to article

⁴ Id. at p. 6. Return to article

⁵ Well, duh. But at least they quantified it. Return to article

⁶ 28 U.S.C. §1930 Appendix (6), (21); Form B281 and Instructions (citing §304(g) of the Bankruptcy Reform Act of 1994). Return to article

⁷ No less than four distinguished contributors to the Legislative Update section of the May 2003 issue of the ABI Journal expressed cogent arguments for their respective points of view: Strauss, Philip L., "Treatment of Child Support Claims Under the Proposed Reform Act," at p. 6, Cordry, Karen, "Domestic Support and the Bankruptcy Code," at p. 47, Entmacher, Joan, "How the Bankruptcy Bill Will Affect Women and Children Owed Child Support," at p. 49, and Viken, Linda Lea M., "The Overall Impact of H.R. 975—The Bankruptcy Reform Act—Will Hurt Women and Children, Especially Those Dependent on Child Support and Alimony," at p. 49. Only Mr. Strauss favors passage. Return to article

⁸ A good example of this approach was demonstrated by Yerbich, Thomas J., "The Coming Exodus of Consumer Counsel," ABI Journal, p. 10 (July/August 2003), detailing the bill's effect on the representation of debtors. Return to article

⁹ It took quite some time to convince the proponents to add to proposed 11 U.S.C. §507, a provision that allows payment of a trustee who recovers assets for a support creditor (H.R. 975 §121); earlier versions made support claims a first priority, as does H.R. 975, but before administration expenses, which meant that chapter 7 trustees could work for nothing or refuse to work at all, probably by filing a report of no distribution. This would deprive claimants of certain bankruptcy-related assets, such as preferences or some fraudulent transfers, as well as a share of anything else the trustee might recover. Chapter 12 and 13 trustees would administer the whole plan (or until the support creditor was paid) for free. The current version recognizes that trustees, like most human beings, do not like to work for nothing, or at least like to have a choice in the matter. Return to article

¹⁰ Sec. 211. DEFINITION OF DOMESTIC SUPPORT OBLIGATION.

Section 101 of title 11, U.S. Code, is amended—
(1) by striking paragraph (12A); and
(2) by inserting after paragraph (14) the following:

(14A) "domestic support obligation" means a debt that accrues before or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable non-bankruptcy law notwithstanding any other provision of this title, that is—

(A) owed to or recoverable by—

(i) a spouse, former spouse, or child of the debtor or such child's parent, legal guardian, or responsible relative; or
(ii) a governmental unit;

(B) 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, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before or after the date of the order for relief in a case under this title, by reason of applicable provisions of—

(i) a separation agreement, divorce decree or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable non-bankruptcy law by a governmental unit; and

(D) not assigned to a non-governmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt;...

¹¹ H.R. 975 §215. Return to article

¹² See In re Wise, 281 B.R. 248 (Bankr. M.D. Pa. 2002) (cost of residential care in juvenile facilities for delinquency discharged); In re Spinks, 233 B.R. 820 (Bankr. S.D. Ill. 1999) (foster care costs discharged); see, also, In re Platter, 140 F.3d 676 (7th Cir. 1998) (decided under §523(a)(5) and cost discharged for delinquency facility, but probably would have had same result under §523(a)(18)). Return to article