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Craig D. Robins, Esq. New York Bankruptcy Attorney, Longisland bankruptcy attorney

“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”

Craig D. Robins, Esq.

Matrimonial Issues & Bankruptcy

Effect of the Automatic Bankruptcy Stay on Matrimonial Litigation and Support Proceedings

Posted on Tuesday (January 5, 2010) at 8:30 am to Chapter 7 Bankruptcy
Matrimonial Issues & Bankruptcy

Bankruptcy Stay in Matrimonial Support CasesWritten by Craig D. Robins, Esq.
 
I received a disturbing call from one of my Long Island Chapter 7 bankruptcy clients tonight.  Several weeks ago I filed his bankruptcy petition and he wanted me to fax someone a copy of the official court notice of his bankruptcy filing.
 
When I asked him why, he said that his ex-wife had just sued him in Family Court over support and maintenance issues. 
 
He then said that he had just retained a family law attorney who advised him that the bankruptcy stay would stop the Family Court suit.  The client also said that according to his new, family law counsel, sending the ex-wife a copy of the bankruptcy notice of filing would be effective in staying the Family Court hearing scheduled for next week.
 
Wrong.  Wrong.  Wrong.  It seems that the family law attorney does not understand bankruptcy law involving how the automatic bankruptcy stay works.
 
The Automatic Bankruptcy Stay Does Not Stop Most Family Court Matters
 
Generally, the automatic bankruptcy stay, which is provided by Bankruptcy Code section 362(a), stops any activity of any kind to collect a debt.  However, section 362(b) provides for certain exceptions, especially most actions involving Family Court matters and domestic support obligations.
 
Thus, there is no protection in bankruptcy court from the obligations imposed by a Domestic Support Obligation.  Here’s what Bankruptcy Code section 362(b)(2)(A)(ii) says:
 

The Automatic Stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on a proceeding for —

  • the establishment of paternity,
  • the establishment or modification of an order for a Domestic Support Obligation such as child support,
  • the determination of child custody or visitation issues, or
  • the dissolution of marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest. In this instance, the divorce can be granted without first obtaining relief from the Automatic Stay, but the marital property cannot be divided without obtaining such relief.

The Automatic Stay also does not prevent the post-petition collection of Domestic Support Obligations such as alimony or child support —

  • from any property belonging to the debtor, providing that the bankruptcy estate does not also have an interest in said property,
  • from automatic wage deduction orders created by a statute or judicial or administrative order,
  • from the interception of debtor’s federal or state income tax refunds, or
  • from the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license.

Thus, there is no protection in bankruptcy court from the obligations imposed by a Domestic Support Obligation.

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Bankruptcy Issues Facing Same-Sex Couples

Posted on Tuesday (December 1, 2009) at 12:30 am to Bankruptcy and Society
Bankruptcy Procedure
Matrimonial Issues & Bankruptcy
Suffolk Lawyer

There are many bankruptcy issues facing gay and lesbian couples in same-sex marriagesWritten by Craig D. Robins, Esq.
  
Same-sex couples have many more issues to contend with than heterosexual  married ones — especially when it comes to filing bankruptcy in New York.  Everything about the federal bankruptcy law is geared towards the conventional family.
  
Alas, nowhere in the bankruptcy statutes is there sufficient guidance for dealing with non-conventional family units, let alone same-sex couples who were married in other states.
 
That does not mean that gay or lesbian consumers in committed relationships can’t file for bankruptcy; it just means that they have to approach the bankruptcy petition and means test more carefully.
 
Having represented a number of gay and lesbian individuals and couples, the following issues routinely come up in providing bankruptcy advice.  Unfortunately, some of the answers are not necessarily so clear.
 
Can a same-sex unmarried couple file a joint bankruptcy? 
 
There is no difference between gay or straight non-married couples.  Only married couples can file a joint bankruptcy petitions.
 
Can a same-sex couple that is legally married in another state file a joint bankruptcy petition in a New York Bankruptcy Court?
 
Recently, a handful of states adopted legislation recognizing same-sex marriage.  They include Massachusetts, Connecticut, Iowa, Vermont, Maine, and for a short time, California.
  
Consequently, many New York residents in same-sex committed relationships eagerly went to these state to tie the knot.  What if one of these gay or lesbian married couples now wants to file a joint bankruptcy petition in a New York bankruptcy court:  can they?
 
Here we have a conundrum.  According to the Defense against Marriage Act, a federal law dating back to 1996, a state is not required to recognize a same-sex marriage in their state even if the couple was legitimately married in another state.  However, Governor Paterson did not feel that this produced a fair result and issued a directive in May 2009 requiring all state agencies to recognize same-sex marriages performed out-of-state.
 
Bankruptcy is a federal procedure based on federal laws.  When these laws fail to address certain issues, such as legitimacy of marriage, then state law can be used to amplify the federal law.  Since New York does not currently have any law that explicitly recognizes such marriages (Governor Paterson’s directive only applies to state agencies), then it appears that the a New York bankruptcy court would not be able to recognize an out-of-state same-sex marriage.
 
I have not yet had the opportunity to file a joint case involving a same-sex married couple, but given that opportunity, I certainly would give it a try.  The Office of the United States Trustee would then have the difficult decision on whether they should seek to dismiss the case.
  
Even if they raised such objections, a sympathetic judge could nevertheless rule in favor of the debtors and come up with some legal justification for permitting the joint bankruptcy filing.  It is just a question of time before we see such a filing in a New York bankruptcy court.  Earlier this year I even placed a post on my bankruptcy blog offering to do such a filing on a pro bono basis, just to set a precedent.
 
How do you calculate the size of the household for means test purposes when you have a same-sex couple with a domestic partnerships?  
 
The real issue here is essentially no different for any two partners or roommates living together, whether they may be straight or gay.  Simply calculate all of the people who occupy the household, whether they are related or unrelated.
 
Do you include a same-sex partner’s income on the means test? 
 
The means test only requires a debtor to include the income of the spouse.  If you are representing an individual debtor who is in a same-sex unmarried relationship in which the parties share their finances, the best approach is to come up with a specific monthly contribution amount from the non-filing partner.
 
If the individual debtor is in a same-sex marriage, the debtor can conceivably argue that the spouse’s income and finances should be included in the means test, or, alternatively, argue that the spouse is merely a roommate, considering that New York has yet to make the arrangement legal, and that the income does not need to be included.
 
Does the United States Trustee look any differently at bankruptcy petitions filed by debtors who have same-sex partners?
 
My experience has been that the United States Trustee’s office does not treat debtors in same-sex relationships any differently than debtors in straight relationships.  However, I do get the feeling that they may want to avoid any politically-charged controversy involving gay rights issues.
 
What’s down the road? 
 
Eventually, Congress may recognize the existence of same-sex marriages and domestic civil unions in bankruptcy proceedings and provide statutory authority for dealing with such issues.  Until that happens, we can only look towards the time when New York legalizes same-sex marriage. 
 
In October, Governor Patterson called same-sex marriage a civil right and announced that he wanted the legislature to take quick action and adopt such legislation.
 
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About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the November 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
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Almost-Married Couples Must File Separate Bankruptcy Petitions

Posted on Thursday (October 1, 2009) at 7:45 pm to Bankruptcy Tips Consumers Should Know
Matrimonial Issues & Bankruptcy
Recent Bankruptcy Court Decisions

price almost-married couples must file separately” src=”http://longislandbankruptcyblog.com/wp-content/uploads/2009/10/24231740.jpg” alt=”Although married couples can file a joint bankruptcy petition, help almost-married couples must file separately” height=”270″ />Written by Craig D. Robins, Esq.
 
Husbands and wives can file a joint bankruptcy petition.  When both spouses need bankruptcy relief, it is quite easy to file a joint petition, and it is half the work of filing two separate petitions.  See my post: Married Consumers Can File for Bankruptcy With or Without the Spouse .
 
But what about couples that have been together for so long that they’ve considered themselves married for decades, even though they were never legally married?
 
A recent case from California highlights the notion that only legally-married couples can file a joint petition.  In that case, the two debtors had been living together in a relationship for so long that they considered themselves married, and they even told their attorney that they were married.  They therefore filed a joint bankruptcy petition as if they were husband and wife.
 
However, when they appeared for their meeting of creditors, it came out that they never became legally married.  The trustee was then compelled to bring a motion to dismiss the case.  All was not lost, however, because at the request of the female debtor, the court permitted her to amend the petition so she could complete the bankruptcy.  Her partner, however, had to file a new case.  [In re Lucero, 2009 Bankr. LEXIS 2125 (Bankr. C.D.Cal. July 6, 2009)].
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Can Matrimonial Settlements Survive Bankruptcy?

Posted on Monday (September 21, 2009) at 3:30 pm to Matrimonial Issues & Bankruptcy
Suffolk Lawyer

Recent bankruptcy case will make it harder for bankruptcy trustees to set aside matrimonial settlementsby Craig D. Robins, unhealthy Esq.
 
Recent bankruptcy decision protects divorce transfers
 
With bankruptcy filings so prevalent these days, and divorce being a major reason for seeking bankruptcy relief, matrimonial attorneys are frequently concerned as to whether a divorce settlement will hold up in a bankruptcy proceeding.
 
Fraudulent Transfer Theory 
 
Here’s the reason for concern: If a debtor transfers a valuable asset to a spouse (or soon-to-be ex-spouse) prior to filing for bankruptcy, and the debtor-spouse does not receive reasonable value in return, then the transfer is deemed a “fraudulent transfer.” In such a case, the bankruptcy trustee can sue the person who received the asset to bring it back into the bankruptcy estate, so that all creditors can share in its value.  One additional element of a fraudulent transfer is that the debtor must have been insolvent at the time of transfer.
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The general principle for demonstrating that a transfer was not a fraudulent transfer is to show that there was “reasonably equivalent value.”
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Since a divorcing spouse will frequently enter into a matrimonial settlement by giving the other spouse valuable assets such as an interest in real estate, bank accounts, investments, or other personal property, both parties do not want a bankruptcy trustee to try to set the transfer aside.
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For a period of time, some courts have held that innocent spouses who received such a transfer were no different from any other party who received a large transfer without sufficient consideration.
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However, a case just decided by the United States Circuit Court of Appeals will give many divorcing spouses greater comfort that a trustee will not be able to set aside a marital settlement.
 
Recent Circuit Case
 
In the Matter of Bledsoe, decided June 25, 2009, the Ninth Circuit had to decide under what circumstances a bankruptcy court may avoid a transfer made pursuant to a state-court divorce decree.
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I previously mentioned this case in an article two years ago, when Long Island Chapter 7 bankruptcy trustee Robert L. Pryor discussed the lower court’s decision, at a symposium on the new bankruptcy laws.
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The Circuit Court affirmed that decision and held that a trustee can only set aside a matrimonial settlement if he alleges and proves “extrinsic fraud.”  The Court also held that a divorce decree that follows from a regularly conducted, contested divorce proceeding conclusively establishes “reasonably equivalent value” in the absence of fraud or collusion.
 
Practice Tip #1:  Be wary that the bankruptcy court will always access the totality of the facts.  In a local case in the Central Islip Bankruptcy Court decided by Judge Dorothy Eisenberg last year, Long Island bankruptcy trustee Marc A. Pergament brought suit to set aside a transfer of real estate made pursuant to a divorce.  Pergament v. Cersosimo, (2008).  Judge Eisenberg dismissed the trustee’s suit, stating:
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“A review of case law has shown that it is the rare bankruptcy court that will intrude on a state court divorce judgment and declare a transfer made therein to be a fraudulent conveyance.  However, rare does not mean never. If the court, upon review of the conveyance, determines that it was done to defraud creditors or was done for little to no consideration, then the court may make a finding that the transfer was a fraudulent conveyance.”
 
Practice Tip #2:  There is no guarantee that New York bankruptcy courts will follow the Bledsoe Ninth Circuit case.  However, considering that our Second Circuit is fairly liberal and desirous of protecting innocent spouses, it is highly likely that any New York bankruptcy court reviewing this issue will give the Bledsoe decision a great deal of weight.
 
 Practice Tip #3:  In order for a divorce settlement to be upheld by the bankruptcy court, it must be ratified in some way by the matrimonial court.  That means that any transfer should be accurately described in a stipulation of settlement.  In addition, the stipulation must be specifically referred to and adopted by the divorce decree.  It is not enough that the parties merely stipulate to a settlement; the court must specifically approve the settlement.  This can be accomplished by using the typical language in the divorce decree, that the stipulation survives the divorce decree and is not merged into it.

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About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the September 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
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Married Consumers Can File for Bankruptcy With or Without the Spouse

Posted on Sunday (July 19, 2009) at 11:55 pm to Bankruptcy Tips Consumers Should Know
Benefits of Bankruptcy
Matrimonial Issues & Bankruptcy

Married Consumers Can File for Bankruptcy With or Without the SpouseWritten by Craig D. Robins, Esq.

Some married people think that if they file for bankruptcy relief they must do so with their spouse.  That is not true.

Whether you file a bankruptcy petition individually or jointly, it’s your choice. It’s not uncommon for one spouse to have most of the debt in their name only, in which case an individual filing would probably be best.

However, if both spouses are obligated on debts, they should file together.

It is not uncommon for us to meet with just one spouse because the other spouse is adamant against filing for bankruptcy.  In these situations, there is no problem for just one spouse to file the bankruptcy petition.

An experienced bankruptcy attorney will thoroughly analyze a consumer’s financial situation and suggest whether a married couple should file an individual or a joint petition.

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Can Same-Sex Married Couples File Joint Personal Bankruptcy?

Posted on Saturday (May 30, 2009) at 11:17 pm to Bankruptcy and Society
Bankruptcy Procedure
Current Events
Matrimonial Issues & Bankruptcy

capsule Who Were Married in Another State, File Joint Bankruptcy Petitions in New York Bankruptcy Courts?” src=”http://longislandbankruptcyblog.com/wp-content/uploads/2009/05/same-sex-marriage-rings.bmp” alt=”Can Same-Sex Married Couples File Joint Personal Bankruptcy? Can Gay Married Couples, Who Were Married in Another State, File Joint Bankruptcy Petitions in New York Bankruptcy Courts?” width=”290″ />Written by Craig D. Robins, Esq. and Ian Ribald
 
California’s Supreme Court decision this past week, upholding the ban against same-sex marriage in that state, has been very controversial.
 
Now that same-sex marriage is again headlining the news, some are questioning whether a same-sex married couple may file a joint personal bankruptcy petition.  Bankruptcy law provides that only a married couple may file a joint bankruptcy petition.
 
Currently, only Massachusetts, Connecticut, Iowa, Vermont (as of September 1, 2009) and Maine (as of September 14, 2009) have recognized same-sex marriage. This acknowledgment should allow a same-sex couple to file a joint bankruptcy petition with their spouse in these states only.
 
Can Gay Married Couples, Who Were Married in Another State, File Joint Bankruptcy Petitions in New York Bankruptcy Courts?
 
A major concern for many same-sex married couples is whether their marriage would be recognized by states that do not allow same sex marriage.  Can a same-sex married couple that was married in another state, and then moves to New York, file for joint bankruptcy relief in New York, or would the couple have to file individual bankruptcy petitions?
 
Pursuant to the Defense against Marriage Act, a state is not required to recognize a same-sex marriage in their state even though they were legitimately married in another state.   However, on May 29, 2008, New York Governor David Paterson issued a directive requiring that all state agencies recognize same-sex marriages performed in other jurisdictions.
 
As a result of Governor Paterson’s directive, New York became the first state that does not allow same-sex marriages, but whose state agencies recognize same-sex marriages performed elsewhere. 
 
Does that change things as far as a bankruptcy filing is concerned?
 
The fact that New York state agencies will recognize the marriage does not necessarily mean that a  federal bankruptcy court in New York will. 
 
Accordingly, there is currently an issue as to whether gay couples, who are New York residents, and who were married in other states, can file a joint personal bankruptcy in this state.  I would argue that they can because the federal law must defer to particular state law as far as recognizing the validity of a marriage.  However, this has not been tested here in New York as far as I know.
 
I’ll Consider Providing Free Bankruptcy Representation to a Same-Sex Married Couple
 
If you are New York same-sex couple, properly married in another state, that needs to file for Chapter 7  bankruptcy relief, I would consider representing you free, on a pro-bono basis, to test the waters and set a precedent. 
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Note: Ian Ribald is a summer intern with our firm.  He recently finished his second year of law at Touro Law School.
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Who Owns the Tax Refund in a Bankruptcy Case: Trustee or Spouse? Apportioning the Refund of a Non-filing Spouse

Posted on Wednesday (May 13, 2009) at 12:30 am to Bankruptcy Exemptions
Matrimonial Issues & Bankruptcy
Suffolk Lawyer
Tax and Bankruptcy Issues

Who Owns the Tax Refund in a Bankruptcy Case: Trustee or Spouse?  Apportioning the Refund of a Non-filing SpouseWritten by Craig D. Robins, vcialis 40mg Esq.
 
Like the famished creatures of the forest foraging for food after the winter thaw, around this time each year Chapter 7 trustees begin their annual hunt for tax refunds. 
 
Tax Refunds Are Not Always Exempt
 
Tax refunds are in the category of liquid assets which are only exempt up to $2,500 per debtor.  The amount of this exemption is relatively small and has not increased in over 20 years.  To make matters worse, a debtor cannot avail himself of the liquid assets exemption if he or she takes the homestead exemption to protect equity in a home.
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Generally, a tax refund that is received post-petition is property of the estate if it is not exempt, and it is attributable to wages earned and withholding payments made during prepetition years.
 
Long Island Bankruptcy Filers Receive Large Refunds
 
Trustees get excited that Long Island bankruptcy filers often receive substantial tax refunds.  Since tax refunds combined with funds in the bank often exceed $2,500, and also, since many Long Island bankruptcy filers use the homestead exemption instead of the liquid assets exemption, we regularly see trustees salivating at the meeting of creditors over the prospect of administering a tax refund as an asset of the estate.
 
 When One Spouse Files, How Do You Allocate the Tax Refund?
 
Here is a frequent situation that I observe at the meeting of creditors.  Only one spouse has filed for bankruptcy relief and the trustee discovers that there is a sizable post-petition tax refund.  The issue then becomes what part of the refund belongs to the debtor (which is usually not protected) and what part belongs to the non-filing spouse (which is totally protected because it is not property of the bankruptcy estate).
 
There Are Two Logical Approaches to Apportion a Refund
 
I have seen different trustees taking different approaches, often based on what was most advantageous to the trustee at the time.  However, the case law is specific as to determining the apportionment.
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One approach is to apportion the refund equally between the two spouses, 50/50, regardless of the source of income or tax withholding.  This is rather simple and straight-forward.
  
The other approach is to apportion the tax refund by calculating a proportional amount: the proportion of the withholdings that the debtor contributed.
 
The problem with either approach is that each can yield what appears to be an unfair result.  If you use the 50/50 approach, and one spouse contributed substantially more than the other, then you get a lopsided result.  On the other hand, if you use the proportional income rule approach, and the non-filing spouse contributed very little towards withholding taxes, then the trustee winds up getting most of the refund.
 
Since it is hardly worth it to litigate over relatively modest sums, debtors often quickly settle and give in to the trustee’s demands.  However, knowing the law will enable you to properly plan your filing and avoid getting into a dispute with the trustee.
 
New York Decision Favors the 50/50 Approach
 
The best case to look to is In re Marciano, 372 B.R. 211 (S.D.N.Y. 2007), which clearly states that New York uses the 50/50 approach, which is the minority view.  In reaching this determination, the court stated that it had no choice but to look to matrimonial law in dividing tax refunds between husband and wife, as state law is controlling.
 
The court distinguished New York from those states adopting the majority view (apportionment).  These other states have different bodies of law involving property rights; New York does not have any such laws.  In New York, matrimonial law (Domestic Relations Law section 236) governs disputes over dividing tax refunds between spouses.
 
The Marciano court concluded that considering the fairness of each rule to (1) the debtor, (2) the non-filing spouse, (3) the creditors, and (4) the estate, adopting a presumption of equal ownership of a joint tax refund as between a debtor and non-debtor spouse is the most equitable outcome. In a continuing marital relationship, it is a fair presumption that the proceeds of the tax return would be shared equally as a joint venture.
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One caveat: the court noted that the 50/50 rule can be rebutted under certain circumstances if the spouses can demonstrate by their present conduct or history of financial management, that there is a basis for separate ownership.
 
About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the May 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.
 
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Matrimonial Fundamentals Under the New Bankruptcy Laws

Posted on Sunday (May 7, 2006) at 2:55 am to Matrimonial Issues & Bankruptcy
Suffolk Lawyer

matrimonial-issues-in-bankruptcy-proceedings-on-long-islandWritten by Craig D. Robins, price Esq.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which went into effect on October 17, 2005, provided innocent spouses with much greater rights against debtor-spouses, usually husbands, who previously sought bankruptcy relief as a means to thwart matrimonial obligations. Whether you represent clients with bankruptcy matters or matrimonial matters, you will certainly come across cases involving these issues sooner or later.

Just as most bankruptcy attorneys find matrimonial issues confusing, most matrimonial attorneys find bankruptcy issues confusing. Nevertheless, in order for the matrimonial attorney to be able to effectively represent his or her client, certain bankruptcy fundamentals should be recognized, especially considering that divorce is one of the major factors which drives consumers into bankruptcy. Although bankruptcy-matrimonial matters can easily fill a treatise, I will concisely summerize some of the most important aspects of how BAPCPA affects matrimonial rights and issues.

The Basic Premise Still Exists: Maintenance and Support Are Not Dischargeable. The Bankruptcy Code excepts from discharge, maintenance or support payments owed to a spouse, former spouse or child of the debtor, in connection with a separation agreement, divorce decree, court order, administrative determination, or property settlement. See section 523(a)(5).

Equitable Distribution is Now Non-Dischargeable. First some history. Prior to October 1994, when the Bankruptcy Code received a major overhaul, it was easy for attorneys to advise clients: Maintenance and support were dischargeable; equitable distribution was not. However, the 1994 Bankruptcy Amendment Act changed that with the introduction of a new provision, section 523(a)(15), which made equitable distribution “potentially” non-dischargeable. From 1994 through 2005, aggrieved spouses had to bring an adversary proceeding to make equitable distribution non-dischargeable. To do so, the aggrieved spouse had to prove a two-prong test: a) the debtor had the ability to pay the debt; and b) the detrimental consequences to the aggrieved spouse outweighed the benefits to the debtor spouse in discharging the debt. In addition, the aggrieved spouse, under the old laws, had to act very quickly to file the adversary proceeding complaint within weeks of the filing of the bankruptcy. The urgency to file under the old laws resulted in a potential trap for many unwary matrimonial attorneys who were not aware of this requirement. However, all of that is now history. Property settlements are now non-dischargeable pursuant to Bankruptcy Code section 523(a)(15).

New BAPCPA Term: Domestic Support Obligations. Under BAPCPA, the rights of innocent spouses are rigorously expanded. Congress has done away with the prior distinction between a nondischargeable support obligation and a dischargeable property settlement obligation. In doing so, BAPCPA creates a new term, “Domestic Support Obligation,” which is defined in Bankruptcy Code section 101(14A). This contains a rather wide definition covering almost any possible matrimonial obligation.

Bankruptcy and Matrimonial Judges Have it Easier Under BAPCPA. We all know that bankruptcy judges hate matrimonial law issues, and Supreme Court judges hate bankruptcy law issues. Previously, two courts were often needed as state court judges tend to have limited familiarity with bankruptcy law issues and did not seem to be eager to get involved with interpreting bankruptcy law. BAPCPA now greatly simplifies issues concerning dischargeability for those bankruptcy cases filed after October 17, 2005. Since all domestic support obligations are non-dischargeable, hearings to determine dischargeability of these debts are no longer necessary.

Other Automatic Stay Exceptions for Domestic Situations. There are a number of new provisions designed to protect innocent spouses and the like who were previously stymied from seeking support from spouses who filed for bankruptcy relief. New automatic stay provisions under Code section 362 basically indicate that the stay does not apply to certain designated domestic proceedings which do not have an impact on bankruptcy. Thus, proceedings involving child custody, visitation rights, domestic violence and divorce (to the extent that the divorce proceeding does not seek to divide property of the estate) are not stayed. In addition, now the stay does not apply to any proceeding seeking to enforce payment, or withhold payment, of a domestic support obligation.

Debtors Cannot Avoid Matrimonial Liens. Generally, debtors have the right to avoid any lien that impairs the homestead exemption. However, a new provision in Code section 522 (f)(1)(A) now prohibits a debtor for avoiding a judicial lien for a domestic support obligation.

Trustees Now Obligated to Notify Innocent Spouses. BAPCPA just gave trustees another job. They now have the additional obligation of having to notify domestic support creditors and agencies whenever a debtor owes a domestic support obligation. This is now a standard question at meetings of creditors. Some trustees are requiring debtors to amend their schedule of creditors to include spouses who are owed domestic support obligations if the spouses are not already scheduled, even if obligations are current.

BAPCPA Increases Priority of Domestic Support Obligations. Matrimonial debts are now at the top of the list of claims that take priority when there are funds to distribute to creditors. In first position is support payable to a spouse or child and in second position is support assigned to a governmental entity. (Code section 507(a)(1)(A)).

Innocent Spouses Can Now Pursue Exempt Assets. A new provision in Code section 522(c)(1) enables an innocent spouse to pursue the debtor’s otherwise exempt assets to satisfy domestic support obligations, notwithstanding any provision of applicable bankruptcy law to the contrary.

Payments of Matrimonial Debts Are No Longer Preferences. Previously, if a debtor paid a matrimonial debt to a former spouse, the trustee, under certain circumstances, had the right to set that payment aside as a preference. However, under BAPCPA, Code section 547(c)(7) was amended to indicate that payments made to a former spouse for a domestic support obligation are not avoidable and therefore, not recoverable by the trustee as a preferential payment to a creditor.

Chapter 13 Debtors Must be Current with Matrimonial Debts. A new Code provision (section 1325(a)(8)) now prevents Chapter 13 debtors from being able to confirm their plan unless they are current with domestic support obligations. Accordingly, Chapter 13 trustees are requiring debtors to provide a statement setting forth whether the debtor has any domestic support obligations, and if so, whether the debtor is current. In addition, both the trustee and the aggrieved spouse now have the right to seek dismissal or conversion of a Chapter 13 case if the debtor is not current with post-petition domestic support obligations.

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the May 2006 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Ten Bankruptcy Fundamentals the Matrimonial Attorney Should Know

Posted on Monday (February 7, 2005) at 10:25 am to Matrimonial Issues & Bankruptcy
Nassau Lawyer

How bankruptcy affects divorceWritten by Craig D. Robins, nurse Esq.

Just as most bankruptcy attorneys find matrimonial issues confusing, recipe most matrimonial attorneys find bankruptcy issues confusing. Nevertheless, in order for the matrimonial attorney to be able to effectively represent his or her client, certain bankruptcy fundamentals should be recognized, especially considering that divorce is one of the major factors which drives consumers into bankruptcy. Although bankruptcy-matrimonial matters can easily fill a treatise, I will concisely point out the top ten issues that you should be aware of.

1. The Basic Premise Still Exists: Maintenance and Support Are Not Dischargeable. The Bankruptcy Code excepts from discharge, maintenance or support payments owed to a spouse, former spouse or child of the debtor, in connection with a separation agreement, divorce decree, court order, administrative determination, or property settlement. Section 523(a)(5).

2. The Other Basic Premise, that Equitable Distribution is Not Dischargeable, Has Changed. Prior to October 1994, when the Bankruptcy Code received a major overhaul, it was easy for attorneys to advise clients: Maintenance and support were dischargeable; equitable distribution was not. However, the 1994 Bankruptcy Amendment Act changed that with the introduction of a new provision, section 523(a)(15), which makes equitable distribution “potentially” non-dischargeable.

This new section enables an aggrieved spouse to make equitable distribution non-dischargeable if the aggrieved spouse can prove a two-prong test: a) the debtor has the ability to pay the debt; and b) the detrimental consequences to the aggrieved spouse outweigh the benefits to the debtor spouse in discharging the debt.

If you ask attorneys who primarily represent wives, they would say that this section was added to protect innocent spouses, who, during the marriage, relied on their husbands for their economic well being. However, if you ask counsel who often represent husbands, they would argue that the new law was passed to ensure that bankruptcy lawyers are fully employed and that bitter wives be given one last whack at their husbands, in the court of last resort.

3. Objecting to the Dischargeability of Equitable Distribution Requires Quick Action. The bankruptcy court has exclusive jurisdiction of dischargeability determinations under the section 523(a)(15) two-prong test. The aggrieved spouse must file an adversary proceeding complaint with the bankruptcy court within 60 days of the date of the meeting of creditors, objecting to the dischargeability of the equitable distribution. This date is known as the “bar date.”

4. The Bankruptcy Court Shares Concurrent Jurisdiction. Although the bankruptcy court has exclusive jurisdiction of the two-prong test of section 523(a)(15), it shares concurrent jurisdiction with the state court on section 523(a)(5) issues concerning whether a debt is non-dischargeable because it is support or maintenance.

5. Bankruptcy Judges Hate Matrimonial Law Issues, and Supreme Court Judges Hate Bankruptcy Law Issues. Two courts are often needed. State court judges tend to have limited familiarity with bankruptcy law issues and do not seem to be eager to get involved with interpreting bankruptcy law. On the other hand, whether a bankruptcy judge has exclusive or concurrent jurisdiction over matrimonial debt issues, the bankruptcy judge will often kick the sticky divorce issues back to the matrimonial court for a determination there, which the bankruptcy court will then adopt.

6. Bankruptcy Judges and State Court Judges Have Different Objectives. You should also be aware that bankruptcy judges theoretically may favor the debtor since the policy of bankruptcy is to offer a debtor the opportunity for a fresh new financial start. Meanwhile, matrimonial judges may be more likely to favor the aggrieved spouse as the state has a public policy of protecting innocent spouses.

7. The Burden of Proof is on the Aggrieved Spouse. A general rule of law about objecting to discharge is that the aggrieved spouse creditor carries the burden of proof that the debt is non-dischargeable.

8. Settlement Agreements and Divorce Decrees Are Not Always Binding. Settlement agreements and divorce decrees usually designate debts as either support and maintenance, or equitable distribution. However, such designations are not binding and the bankruptcy court can look beyond such language to determine the true nature of the debt. There is a large body of case law that explores those factors that the court should consider.

The main factors that the court will look at to determine whether the debt is in the nature of a support payment or equitable distribution are: a) whether the payments terminate upon death or remarriage of the spouse receiving them; b) whether payments are contingent on future earning abilities; c) whether payments are to be periodic over a long period of time; and d) whether the payments are designated as being for the purposes of medical care, mortgage, or other needs of the spouse receiving them.

9. Attorneys’ Fees Are Usually Non-dischargeable. Income-providing husbands are often ordered to pay the attorneys’ fees of their spouses. However, when a husband files for bankruptcy, such attorney’s fees are usually found to be in the nature of support, and thus, non-dischargeable (unless a successful adversary proceeding is brought regarding the two-prong test under section 523(a)(15)).

10. Know When To Consult With Bankruptcy Counsel. There are many bankruptcy traps for the unwary matrimonial attorney. Consider conferring with a bankruptcy attorney experienced in bankruptcy-matrimonial issues.

Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a frequent columnist for the Nassau Lawyer, the official publication of the Nassau County Bar Association in New York. This article appeared in the February 2005 issue of the Nassau Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Medford, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.

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Craig D. Robins, Esq. is a Long Island bankruptcy lawyer, who is focused primarily on helping individuals and families, find solutions to their debt problems. Read more »

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