Southern California Bankruptcy Law Blog

Preferential Transfers IV: Defenses To Preference Avoidance Actions (Part VII)

Posted in Chapter 11, Chapter 13, Chapter 7

Here is the sixth defense against preference avoidance actions, the so-called domestic support defense.  This one is short.

Defenses To Preference Avoidance Actions, Part VII:

The Domestic Support Defense

A comparison of the Bankruptcy Code prior to October 17, 2005 with its current incarnation (the 2005 law that changed the Code is the Bankruptcy Abuse And Consumer Protection Act — “BAPCPA,” or as it sometimes less charitably called, BAPCraPA) reveals that Congress intended to strengthen the Code’s protection of recipients of domestic support.  “Domestic support” is defined in § 101(14A).  The definition is long so I will not repeat it here.  The gist is that it includes alimony and child support, and must be owed to a spouse, former spouse, or child of the debtor, or a governmental unit.

The changes to § 547(c)(7) reflect this intent.  The new version is stripped of the former version’s qualifying language, and simply states:  “The trustee may not avoid under this section a transfer — . . . to the extent such transfer was a bona fide payment of a debt for a domestic support obligation.”

The inclusion of the qualifier, “bona fide” indicates that Congress took into consideration payments that might superficially be characterized as domestic support, but were something else entirely.  See In re Futoran, 76 F.3d 265 (9th Cir. 1996) (payment of future spousal support in exchange for termination of marital agreement held to be an avoidable preference).

However, given the paucity of case law on § 547(c)(7), it appears that trustees and DIPs don’t think it is worth the effort to attempt to avoid transfers that look like domestic support.

If you’re facing a preference avoidance action, and need an analysis of your case and the possible application of the domestic support defense to your case, contact a California board certified bankruptcy law specialist to help you.

 

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