How Does Filing Bankruptcy Affect Divorce Obligations?

Bankruptcy Stay and Discharge

The federal government established bankruptcy proceedings as a program to help people deal with mounting debts. Most private individuals can take advantage of two different kinds of bankruptcy options: Chapter 7 Liquidations and Chapter 13 Reorganizations. Both options result temporarily in what is known as an automatic stay during which the petitioner’s creditors may not sue to collect on outstanding debts.

Both Chapter 7 and Chapter 13 bankruptcy proceedings involve managing the petitioner’s assets—known collectively as the bankruptcy estate—to pay for as many outstanding liabilities as possible. Certain outstanding debts that couldn’t be addressed during bankruptcy may be discharged at the conclusion of the proceedings.

Many issues that arise during a divorce deal with the parties’ finances and wealth. Divorce proceedings often result in court-ordered financial obligations. Because bankruptcy has a significant effect on financial obligations, it can be a significant issue in divorce proceedings.

Property Division

The automatic stay in bankruptcy proceedings does not completely bar divorce proceedings. However, specific proceedings within divorce may be subject to the bankruptcy stay. State courts can decide matters affecting divorce, paternity, alimony, and child support. However, the bankruptcy stay prevents state courts from hearing matters concerning the division of assets that are in one of the parties’ bankruptcy estate. Furthermore, bankruptcies filed on or after October 17, 2005, cannot discharge debts arising from the division of community property upon divorce.

Spousal & Child Support

Among the few exceptions to the automatic stay initiated by bankruptcy proceedings are lawsuits involving family support obligations. For example, bankruptcy will not stay a legal action regarding the nonpayment of alimony or child support. Unlike liabilities that arise from certain contracts, spousal and child support obligations stem from legal duties that arise from familial relationships.

Although missing payments can harm the operations of a business in various ways, the harm of missing support payments can directly impact the safety and wellbeing of children and financially dependent individuals. As a result, filing for bankruptcy will not stay proceedings regarding the enforcement and collection of family support payments.

Furthermore, family support obligations generally are not dischargeable in bankruptcy. However, the family support obligation in question must qualify under the bankruptcy code’s definition for true or actual alimony and child support.

Courts have considered the following factors when determining whether there is a true or actual family support obligation:

  • Whether the court and parties intended to create a support obligation
  • Whether a support obligation resulted from an assessment of the factors courts use to determine family support obligations
  • Whether the obligation terminates upon the death or remarriage of either party
  • If the obligation terminates when the child reaches adulthood
  • If payments involve periodic installments over time
  • If there is no other provision concerning child or spousal support
  • The custodial arrangements for minor children
  • Whether the obligation arises from a section of a settlement or separation agreement that doesn’t focus on property division

Comprehensive Legal Representation from Coker, Robb & Cannon, Family Lawyers

Many areas of law cross over with divorce and other family law proceedings. As a result, one must be prepared to deal with complicated issues, such as bankruptcy and its effect on divorce obligations. To make sure you’re prepared for anything a divorce can throw at you, you should consult a skilled attorney from Coker, Robb & Cannon, Family Lawyers. We are dedicated to protecting you and your family’s best interests.

For more information about how Coker, Robb & Cannon, Family Lawyers can help with your divorce, call us at (940) 293-2313 or contact us onlinetoday.

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