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Collecting Support from a Payor Who Has Filed Under Chapter 11
Bankruptcy filings under Chapter 7 are generally available to individuals seeking a fresh economic start. A Chapter 7 proceeding involves the appointment of a trustee who collects assets and pays debts, with any unpaid debts subject to discharge unless a particular creditor is entitled to avoid the discharge of the obligation under specific statutory provisions. By contrast, bankruptcy filings under Chapter 11 are generally available to reorganize a business, although filings under this chapter are available to individuals as well. Chapter 11 individual bankruptcy filings typically do not entail the discharge of obligations until all payments under the reorganization plan have been made. In a Chapter 11 'debtor in possession' proceeding, the debtor is appointed as a kind of self-trustee who collects his or her own assets, pays obligations, and during the course of the Chapter 11 proceeding reports to the court, and thereby to the creditors, with regard to assets, liabilities, income, and expenses.
Of primary concern to matrimonial creditors and debtors alike are the concepts of 'property of the estate' and the 'automatic stay.' Upon the filing of the bankruptcy petition, the bankruptcy 'estate' is created. It is comprised of all the 'property of the estate' from which payment will be made to the debtor's creditors and from which assets will be allocated to the debtor's reorganization. Section 541(a)(1) of the Bankruptcy Code provides that 'property of the estate' includes 'all legal or equitable interests of the debtor in property as of the commencement of the case.' Also arising upon the filing of a bankruptcy petition, pursuant to ' 362(a) of the Bankruptcy Code, is an 'automatic stay' of all litigation, lien execution, and other actions involving the property of the estate or the debtor. Significantly for support creditors, the Code carves out an exception to the automatic stay for 'commencement or continuation of a ' proceeding ' for the dissolution of a marriage,' ' 362(b)(2)(A), and for 'collection of a domestic support obligation,' ' 362(b)(2)(B), but only if these proceedings do not seek to collect or determine 'property of the estate.' This latter provision links the automatic stay's support exception to the concept of bankruptcy estate property.
In a Chapter 7 filing, income that was earned or accrued and paid before the filing of the petition is clearly 'property of the estate,' and income that was earned or accrued and paid after the filing of the bankruptcy petition is not 'property of the estate.' This bright line distinction is important because a support creditor is permitted to invoke state law remedies to collect out of post-petition earnings pre- and post-petition support obligations as these earnings are not part of the Chapter 7 bankruptcy estate.
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