Bankruptcy Won’t Get You Out of Paying Child Support


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If you get hit with a big domestic support judgment against you, filing for bankruptcy could get you nowhere. That’s what a Michigan man found out recently when he tried to avoid paying $100,000 to the mother of his child in a custody dispute.

After the state judge in their custody dispute case ordered Patrick Rugiero to pay Antonietta DiNardo $100,000 in attorney’s fees, he filed for bankruptcy in federal court.

First ruling that the custody case could proceed (despite the bankruptcy filing, which would normally stay, or stall, other court cases against the debtor), the 6th Circuit U.S. Court of Appeals held on Oct. 10 that Rugiero’s whopping debt to his baby mama can’t be wiped out by his bankruptcy case.

 

Forgiven, but not Forgotten

As a general rule, forgiveness of debt, known technically as “cancellation of debt,” is considered income by the IRS: If you owe Walmart $100, and Walmart decides to cancel your debt out of the goodness of its heart, you just made $100 that the government can tax.

But there is an exception for debtors who file for bankruptcy: in most cases, cancelled, or “discharged,” debt is not included as income and thus not taxed under the Internal Revenue Code.

However, the Bankruptcy Code also says that “domestic support obligations” cannot be discharged during bankruptcy. That means the $100,000 debt Rugiero now owes cannot be cancelled just because he filed for bankruptcy. “Domestic support obligations are not dischargeable in bankruptcy. Period,” says Mark J. Markus, a bankruptcy lawyer who runs the Law Office of Mark J. Markus in Los Angeles.

 

Attorney’s Fees Support Attorneys, but What About Parents?

Attorney Mark Markus

Attorney Mark Markus

Rugiero argued that attorneys’ fees don’t count as domestic support obligations themselves, so the court had to address “whether the fee awards, which arose from attorney’s fees incurred by DiNardo during the custody dispute, amount to ‘support’ of the child’s parent.”

Markus explains that the law on the issue is clear and says he would be surprised to find Rugiero filed for bankruptcy purely to get rid of this obligation. “It is well-established, at least under California law, that attorney’s fees awarded to a spouse’s attorney in a custody battle are considered domestic support obligations,” he says.

The court pointed out the evidence of DiNardo’s dire financial straits and the difficulty of raising two kids. If she hadn’t been able to hire a lawyer, she wouldn’t have been able to bring this case for their support to begin with.

 

Try Negotiating

“Large judgments often send people into bankruptcy,” notes Markus. The success of that route depends on many factors, including the type of bankruptcy they file, the facts of the case, and the case law in their location.

If you find yourself on the losing end of a domestic support case, all may not be lost. “Negotiating with the creditor to pay the debt is one option,” Markus says. Or you can always try to appeal the domestic support order ruling itself, without resorting to filing for bankruptcy.

 

If you are in financial trouble because of a large judgment against you, consider consulting a tax or bankruptcy lawyer on Lawyers.com.

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