Family Law/Bankruptcy FAQ’s

Questions about family law and bankruptcyQuestions abound when issues of family law run into bankruptcy law.

It’s hard to think of more emotion-packed subjects than marriage and money.

When the two fields of law, one federal and one state, collide, answers are sometimes hard to find.

The most important thing to know is that support or maintenance claims cannot be discharged in bankruptcy.

In fact, no claims that arise in a divorce in favor of a spouses or child can be discharged in a Chapter 7.

Bankruptcy and support claims

The Bankruptcy Code attempts to protect the rights of children and former spouses to collect support:  whether it is called family support, alimony, or child support, the bankruptcy code makes it non dischargeable in bankruptcy.   The recipient spouse does not have to do anything for the debt to be excluded from the discharge.

The automatic stay, which stops other court proceedings when a bankruptcy is filed, does not apply to actions to establish or modify a support order or to collect support from post petition wages.

Wage orders that deduct current support from the debtor’s wages are not generally affected by the bankruptcy filing.  Wage orders that collect past due support arguably are stayed.

Also, support is a priority claim for purposes of payment from the estate.

Thus in a Chapter 13, payment of past due support is paid before unsecured creditors, and even before taxes.

The recipient spouse must file a proof of claim to receive payment. Get the proof of claim form.

Chapter 13 frequently works well for both the paying spouse (who is protected from other creditors while paying back support) and for the recipient spouse ( who gets regular payments from the trustee made by the debtor voluntarily).

Bankruptcy and other marital debts in a pending divorce

The issues raised when one spouse in a divorce action files bankruptcy are complex and vary somewhat depending on the property and family laws of the state.

In general, the filing of a bankruptcy stops all court proceedings against the debtor;  brings into the bankruptcy estate all property of the debtor and all community property of the debtor and his spouse;  and upon entry of a discharge relieves the debtor of personal liability for all dischargeable debts.

The family court cannot assign marital debts to the debtor after he has received a discharge and cannot make orders dividing the property of  the debtor while the property is property of the estate.

The family court can divide the property that the debtor exempts;  after the exemption is allowed, that exempt property is no longer property of the estate.

The family court can continue to hear and decide issues relating to fixing support. Some courts will require an order from the bankruptcy court, specifically finding that motions to establish or modify support are outside the bankruptcy stay. See Relief from stay.

If you become involved in such a proceeding, get advice from an experienced bankruptcy lawyer.  Find a bankruptcy lawyer.

Bankruptcy and marital settlement agreements

The 2005 amendments to the Bankruptcy Code  made non support obligations created in connection with a divorce or separation nondischargeable in Chapter 7 without any action on the part of the non debtor spouse.11 U.S.C. 523 (a)15.

Those same obligations are dischargeable in a Chapter 13.

Effect of listing a marital debt on the schedules

Just because a creditor is listed by the debtor on the bankruptcy schedules does not make the creditor’s claim dischargeable.  The debtor is required to list all debts on the schedules, even debts that are acknowledged to be non dischargeable.

So, listing a debt to a spouse or former spouse does not show either an intent or perhaps even the power to discharge the debt.

The dischargeability of the debt depends on the nature of the debt (support, property division, lien for equalizing payment, etc.).  Support is non dischargeable without action on the part of the receiving spouse.

If you know about the bankruptcy, whether from the court or through the grapevine, you are charged with finding out what is going on and taking steps to protect your interests, if necessary.

Read more

More on divorce and bankruptcy

If you are a creditor in a bankruptcy case

Family law after bankruptcy reform

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Image courtesy of b4b2.

About the Author
 
 
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.