Bankruptcy & Family Law Interaction: What You Need to Know

1. Bankruptcy-Domestic Cases

2. Stay does not affect many cases • Establishment of Paternity • Establish or Modify Child Support • Establish or Modify Child Custody or Visitation • Proceedings for Dissolution of a Marriage; (except to the extent that such proceeding seeks to determine the division of property that is property of the estate) • Actions regarding Domestic Violence • Actions for the collection of a domestic support obligation from property that is not property of the estate; • Actions with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute

3. Paternity • Paternity is an issue of state law and bankruptcy court is not involved.

4. Establish or Modify Child Support • In a chapter 7 case, child support is not part of the automatic stay and can be collected from property outside the bankruptcy estate. • In a chapter 13 case, a court approved repayment plan of past due child support arrears can be included in the plan. This stops enforcement of repayment of arrears by a state court as long as the repayment is proceeding according to the plan. The arrears must be repaid in the time period for the repayment plan.

5. Establish or Modify Child Custodyor Visitation • Filing for bankruptcy will not directly affect custody rights. A bankruptcy case will be dealt with in bankruptcy court, which has no bearing on custody, which is determined in family court. And the main priority of family court in determining custody is the well-being of the child. • Of course, a judge in family court will consider the financial situation of the parties to some degree. If one party is struggling to maintain a solid financial standing and those struggles have affected their housing situation or their ability to meet their basic daily needs, it’s possible the custody arrangement will be affected. The right to spend time with a child will not be denied, but in order to have traditional in-home visits with a child a stable home is necessary. Parents must be able to prove to the family court they are capable of providing food, clothing, and housing to their child in order to be granted custody.

6. Proceedings for Dissolutionof a Marriage • There may be good reason for couples to consult both a family lawyer and a bankruptcy lawyer if they are considering ending the marriage and they are in financial trouble. There may advantages and disadvantages in filing for bankruptcy either before or after commencing divorce proceedings. The facts and circumstances of each situation will dictate whether and how a bankruptcy proceeding will be filed and what the overall outcome may be.

7. Actions Regarding Domestic Violence • If a client is convicted of a domestic violence charge, the conviction should not affect a pending bankruptcy. If they filed a joint bankruptcy with the person who is accusing them of domestic violence, however, they will need to work with their criminal and bankruptcy lawyers to make sure they do not violate any court orders by having contact with their spouse at a bankruptcy hearing. • The conviction may create new debt, including fines and restitution. The bankruptcy lawyer will need to know about the criminal charges, including any new debt that might be created. While the client will not be able to discharge fines or restitution in a bankruptcy proceeding, there might be other strategies for dealing with those debts.

8. Actions to Collect Child Support • Since child support is a priority debt, filing for Chapter 7 bankruptcy does not affect an obligation to make ongoing payments as they come due. As discussed earlier, if a client falls behind on child support payments, the automatic stay will usually not prevent a lawsuit to collect past due amounts. If the client can’t afford to keep up with child support payments, Chapter 7 bankruptcy can help by wiping out other debts and freeing up more income to put towards child support. • Priority debts, such as child support, get paid before general unsecured debts like medical bills and credit card debt. In fact, child support debt gets paid even before most other priority debts such as recent tax obligations. As a result, if a client owns nonexempt assets, filing for Chapter 7 bankruptcy can actually help a child support creditor collect past due payments without having to initiate a separate legal action.

9. Non Dischargeability of Domestic Support Obligation • A debt in the nature of alimony, maintenance or support of a spouse, former spouse or child of a debtor (defined by the term “domestic support obligation” or “DSO”) is not dischargeable in either a chapter 7 or chapter 13 bankruptcy case. See 11 U.S.C. § 523(a)(5). • Basically, child support obligations are not dischargeable under any circumstances. Congress made child support obligations nondischargeable because payment of child support is more important than a debtor’s financial fresh start.