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 Automatic Stay also does not prevent the post-petition collection of Domestic Support Obligations such as alimony or child support —
Thus, there is no protection in bankruptcy court from the obligations imposed by a Domestic Support Obligation.
Written 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.
Written 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.
Written 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.