Family Court Proceedings and Debts in Bankruptcy

 Posted on February 12, 2018 in Bankruptcy And Divorce

Bankruptcy prevents or stops only certain limited divorce/family law proceedings. Others, including collection of ongoing support, continue.

Our last several blog posts have been about creditor collection actions stopped or not stopped by a bankruptcy filing. Today we get into divorce and family court related proceedings and debts.

Family Court Proceedings

The bankruptcy law that stops creditor collections immediately when filing bankruptcy is called the “automatic stay.”

The automatic stay doesn’t just stop creditor phone calls, wage and bank account garnishments, and vehicle repossessions and home foreclosures. It also stops most creditor lawsuits from being filed and prevents ongoing lawsuits from continuing. This makes sense because a creditor’s lawsuit is clearly part of its efforts to collect its debt.

However, there are certain kinds of lawsuits that have little or nothing to do with collecting a debt. Many of such lawsuits are in family or domestic relations court. Bankruptcy law creates exceptions to the automatic stay to allow certain specific family court proceedings. Such proceedings can be started or continued regardless of your bankruptcy case.

Each of these specific exceptions to the automatic stay makes sense. These proceedings mostly deal with personal matters not pertaining to collecting a debt or taking an asset from you. They include court proceedings

• to establish the paternity of a child
• to establish or modify the amount of child or spousal support
• to resolve issues of child custody or visitation
• to address domestic violence

See Section 362(b)(2) of the Bankruptcy Code.

So, your ex-spouse/domestic partner or about-to-be ex-spouse/domestic partner can start or continue these specific kinds of proceedings regardless of your active bankruptcy case. So can somebody acting on his or her behalf (such as a state support enforcement department).

The Divorce Proceeding

The automatic stay also does not prevent or stop the divorce or dissolution of marriage proceeding itself. When you file a bankruptcy case it doesn’t affect an ongoing divorce proceeding or the filing of a new one.

But that’s not quite true on a practical level. The automatic stay DOES apply to and does stop what is a crucial part of most divorce proceedings. That’s the division of marital property and marital debt. If there is no marital property or debt being addressed in your divorce, if only the dissolution of the marriage is being adjudicated, then that proceeding can continue and the marriage can be dissolved, regardless of your bankruptcy case.

But if, as usual, there’s some property or debt to divide, the automatic stay stops that from going ahead.

The Bankruptcy Code excludes from the automatic stay “a civil action or proceeding... for the dissolution of marriage, except to the extent that such proceeding seeks to determine the division of property... .” (See Section 362(b)(2)(A)(iv).)

That exception makes sense because of what bankruptcy deals with—property and debt. Chapter 7, especially, looks to your property and debts as of a certain point in time—your date of filing. It would not be a very sensible use of court time for two courts to be dealing simultaneously with your property and debts. The bankruptcy court would be dealing with a fluid situation as the divorce court shifted the debtor’s property and debts. So, a divorce court is stopped from proceeding on these issues while the automatic stay is in effect.

Collection of Child and Spousal Support

(We’ve addressed the special situation of child and spousal support separately in a recent blog post so we’ll be brief here.)

The automatic stay does not stop the collection of ongoing child or spousal support in either Chapter 7 or 13.

Chapter 7 “straight bankruptcy” also does not stop the collection of prior unpaid support. But Chapter 13 “adjustment of debts” can stop prior unpaid support collection, IF you act proactively and with consistency. You must:

• continue paying any ongoing monthly support payments
• arrange to pay all unpaid support current during your Chapter 13 payment plan
• actually make the proposed and court-approved plan payments so that you do catch up on all unpaid support during your 3-to-5-year plan