This is a very common question that is posed in our offices. Many of times our clients are recently divorced. Because of the divorce they need to file bankruptcy due to the lost income which the ex-spouse had brought to the relationship.
Although most matrimonial attorneys will be familiar with the basics of bankruptcy they really should consult with an experienced bankruptcy attorney so they can effectively plan for bankruptcy contingencies that may arise . Here are some of the important highlights of the bankruptcy code and its interplay with family law.
Section 523(a)(5) of the Bankruptcy Code excepts from the debtor's discharge, maintenance or support payments owed to a spouse, former spouse or child of the debtor, in relation with a separation agreement, divorce decree, court order, administrative determination, or property settlement agreement.
Section 523(a)(15) of the code makes property settlements non-dischargeable. Property division debts continue to be dischargeable upon completion of a chapter 13 bankruptcy plan. Therefore, determining the nature of an obligation to be support or property division will still apply in the chapter 13 context. However it is safe to say that except in a chapter 13 case, all debts that arise in the domestic relations context are not discharged. See, e.g., In re Blackburn, 412 B.R. 710 (Bankr. W.D. Pa. 2009). Although a Chapter 13 is more lenient in discharging property division debts it is also requires under section 1325(a)(8) that a Chapter 13 debtor must be current with their domestic support obligations for plan confirmation.
Section 362 provides that the filing of a bankruptcy operates as a stay against all acts to acquire property of the debtor or to recover a claim against the debtor that arose prepetition. However under§ 362(b)(2) most family law matters are excepted from the stay to include actions to establish paternity, to establish or modify support, to collect domestic support obligations from property that is not property of the estate, concerning child custody and visitation, concerning domestic violence, to withhold income, including income that is property of the estate, for payment of a domestic support obligation, concerning certain licenses, and the reporting of overdue support for certain purposes.
When you file for bankruptcy the Trustee has an obligation to notify domestic support creditors and agencies whenever a debtor owes a domestic support obligation. As mentioned above all DSO's must be current to have a Chapter 13 plan confirmed, as well as, the trustee and /or the divorce support creditor 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.
Under section 522(c)(1) a divorce support creditor can pursue the debtor's otherwise exempt assets to satisfy domestic support obligations (DSO's), notwithstanding any provision of applicable bankruptcy law to the contrary. Also, divorce support creditors can also pierce the homestead exemption under 522(f)(1)(a) which prohibits a debtor for avoiding a judicial lien for a domestic support obligation.
The New Jersey consumer bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have concerning bankruptcy law and how it may relate to your divorce case. If you live in New Jersey, including Jackson Township, Old Bridge Township, Princeton Township and Hightstown call us for a free consultation to find out how we can help.