Bankruptcy and Divorce

When your ex-spouse files for bankruptcy, all efforts to collect any debts have to stop unless they fit within one of the exceptions in the bankruptcy statute. This is known as the “automatic stay.” One exception to the automatic stay is the one that allows the commencement or continuation of a proceeding to establish or modify a support award or collect support from property that is not property of the bankruptcy estate. 11 U.S.C. 362(b)(2).

Current support debts survive a bankruptcy without the need for you to have to go to bankruptcy court. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, among the changes in creditor priority is that unpaid child support and alimony has priority over any other creditor, including taxes owed. If you are owed back support it is very important that you file a “proof of claim” with the bankruptcy court to receive payment.

The bankruptcy law requires the trustee in bankruptcy, if there is a claim for a domestic support obligation in a case, to provide written notice to the party to whom the domestic support obligation is owed, and to the state’s Child Support Enforcement Agency. A notice at the time of filing and a second notice at the time of discharge are required. In the notice to the creditor, the trustee must provide contact information for your state’s Child Support Enforcement Agency.

The new bankruptcy law made non-support obligations from a divorce or separation non-dischargeable in a chapter 7 bankruptcy, if the discharge of the obligation would harm the spouse to whom the obligation is owed more than it would harm the person who owes it, your ex-spouse. 11 U.S.C. 523(a)(15). A debt that is non-dischargeable means that your ex-spouse is still responsible for it. You would need to file a complaint in bankruptcy court to get the property settlement debt excepted from discharge. If you don’t file a claim with the bankruptcy court, the debt may be wiped out and you won’t be able to collect it later.

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts arising from property settlements in divorce or separation proceedings.

How do bankruptcy courts decide what’s a support obligation and what’s a property settlement? The courts have based their decisions on such questions as:

Does the obligation terminate or reduce with the occurrence of certain events, like remarriage or a child turning 18?
Is the obligation in installments or a lump sum?
Are there minor children?
What is the relative health and education of the parties?
Was there a need for support at the time of the divorce?

The way in which the judgment of divorce is drafted can reduce the chance that the bankruptcy court will discharge the debt. The likelihood that the debt will not be discharged by labeling the debt payments as either support or alimony in the decree.

If you’re listed as a creditor on your ex-spouse’s bankruptcy petition, you should receive notice from the bankruptcy court of the filing and information about the date and time of the first meeting of creditors (known as a “341 meeting”). You should also receive information on the deadline for filing a claim and a proof of claim form for filling out.

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