Chapter 12 Plan – Domestic Support Obligation

PLAN.  The Chapter 12 debtor’s plan treated a domestic court obligation to the debtor’s former wife as an allowed secured claim rather than as a domestic support obligation that must be repaid before the plan could be confirmed. In a post-divorce settlement agreement entered into prior to the filing for bankruptcy, the former spouse had agreed to reduce the debt from $106,000 to $88,000 that was payable in full on November 1, 2014. That agreement was a novation that replaced the parties’ original divorce property settlement. The new agreement stripped the debt of its domestic support obligation character and excused the debtor from having to pay it in full as a prerequisite to confirmation. The Chapter 12 plan offered to repay the debt over 20 years with interest, extending an obligation which was currently overdue in full. The court noted that the debtor had been behind in payments under the original divorce agreement and had not made any payments for more than four years. The court first held that the new agreement was no longer a domestic support obligation because the agreement did  not include provisions for the death or remarriage of the former spouse or for failure to make support payments.  The court held that the plan could not be confirmed because it was not proposed in good faith since (1) the debtor had not made any payments for over four years; (2) the final payments would not be made until more than 14 years after the new agreement’s payment date; and (3) the plan did not provide a rate of interest at least equal to the interest paid for other secured creditors. In re Krier, 2016 Bankr. LEXIS 1872 (Bankr. D. Kan. 2016).

The case summary is from Vol 27 No. 15 of the Agricultural Law DigestClick here for information on how to subscribe to the Digest.

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