What is dischargable in a bankruptcy proceeding

1. Support payment - Late fees and penalties

Support payments are not dischargeable in bankruptcy. But what about penalties imposed for failure to pay support? The 1st Circuit Court of Appeals held in a ruling released on November 12, 2009 that $50 per day penalties owed by the husband because his spousal support payments were late are not "in the nature of support." [Note the penalties had accumulated to some $75,000+ over a period of years.] Thus the former husband could discharge them in bankruptcy.
According to the court:
"The term "domestic support obligation" ("DSO") is a newly defined term in the Bankruptcy Code, as updated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). See Pub. L. 109-8, 119 Stat. 23 (2005). As relevant here, a DSO is defined as ' . . . a debt that accrues before, on, 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 nonbankruptcy law [owed to] a former spouse [and that is] in the nature of alimony, maintenance, or support . . . without regard to whether such debt is expressly so designated. 11 U.S.C. § 101(14A).' "

Pursuant to the statute, for an obligation to a former spouse to be considered a DSO, it must actually be in the nature of support. This issue is one of federal bankruptcy law, and not state law.
The 1st Circuit Court disagreed with the lower bankruptcy court, which had said that the $50/day penalty "looks, smells, and feels too much like attorneys' fees collecting alimony and support payments, which have historically . . . been treated as in the same nature" as alimony. Rather, the 1st Circuit concluded that [the ex-wife's] claim is a general unsecured claim not entitled to priority status and can be discharged in [the ex-husband's] bankruptcy. See 11 U.S.C. §§ 523(a)(15), 1328(a)(2).
 
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Spousal Support Late Fees - Dischargable In Bankruptcy  - freeconsultation
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