Bankruptcy & Family Law Lawyers in Southern California
Law Firm Specializing in Divorce / Bankruptcy Crossover Issues
The filing of a petition with the Bankruptcy Court instantaneously shields the debtor from most further acts by creditors to collect on debt owed as of that date. Filing automatically invokes the automatic stay under 11 U.S.C § 362(a) of the Bankruptcy Code. As a result, the debtor‘s estate is preserved for all creditors. The stay protects both the debtor, who gets relief, and the creditors as a group, whose claims are protected against other creditors who could otherwise pursue their own remedies. It puts a stop to the typical creditor‘s ―race to the courthouse, and replaces it in a Chapter 7 context with an ―equitable distribution of all of the assets of the bankruptcy estate. Unfortunately for a non-filing spouse, a Bankruptcy filing takes away the critical right of the family court to continue with a divorce action with regard to property division.
For this reason, in a divorce case that makes its way into the bankruptcy court, there is not always a straightforward resolution. Hiring a knowledgeable attorney who understands both areas of law can help resolve both matters, so that you can get back to your life.
Exceptions to the Bankruptcy Automatic Stay in California Family Law Cases
11 U.S.C § 362(b) provides the following exceptions to the Automatic Stay:
- The establishment of paternity;
- The establishment or modification of child support, spousal support, or family support obligations;
- The establishment or modification of child custody or visitation orders;
- The dissolution of a marriage, (except the division of property that is property of the estate);
- The establishment or modification of domestic violence restraining orders;
- The collection of child, spousal, or family support from property that is not property of the estate; or
- The reporting of overdue support owed by a parent to the Department of Child Support Services.
Dischargeability of Family Law-Related Debts in Bankruptcy
Although the debtor-spouse may be granted a discharge oh his/her debts in bankruptcy, 11 U.S.C. § 523 provides that certain types of debts are non-dischargeable and remain liabilities of the debtor after the close of the case.
In a Chapter 7 filings, most “divorce related debts” are now non-dischargeable under 11 U.S.C. § 523(a)(5) and (15). However, in a Chapter 13, only “domestic support obligations” are non-dischargeable.
11 U.S.C. § 101(14A) defines a “domestic support obligation” as:
a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable non-bankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
Whether a particular debt is a support obligation or part of a property settlement is a question of federal bankruptcy law, not state law. Therefore, even when a California family court characterizes an award as “support,” the bankruptcy court is not bound by the characterization, and the burden of proof under § 523(a)(5) is on the party asserting that the debt is nondischargeable (i.e. the non-filing spouse).
One of the most important powers an non-filing ex-spouse has to go after their ex-spouse AFTER that ex-spouse has filed bankruptcy and received a discharge from their debts is 11 U.S.C. § 522 (c)(1). That section of the bankruptcy code says that all exempt property that the debtor gets to keep despite filing bankruptcy is still exempt against any debts that the debtor incurs AFTER they get discharged from bankruptcy EXCEPT for domestic support obligations (i.e. child and spousal support).
This means that a spouse owed back child or spousal support may be able to, for example, seek to sell their ex-spouses’ home out from under him or her after he or she emerges from bankruptcy.
Community Property Residence in Bankruptcy
Exemption law determines the property a debtor can protect in bankruptcy, such as a home, car, or retirement account. California has opted out of the federal scheme and is the only state that lets debtors choose between two sets of state exemptions. Debtors use either Code of Civil Procedure § 703 or § 704 exemptions.
Section 704.730 provides homestead exemptions for real or personal property occupied at the time of the bankruptcy filing up to the following limits: $75,000 if single and not disabled; $100,000 if family and no other member have a homestead; $175,000 if 65 or older or if physically or mentally disabled; $175,000 if creditors are seeking to force sale of your home, and you are either (a) 55 or older, single and earn under $25,000 per year, or (b) 55 or older, married and earn under $35,000 per year. Sale proceeds are exempt for up to six months after the sale.
Some of the most common cross-over issues in family and bankruptcy relate to community real property (marital residence) as a result of this “homestead exemption” (See In re Brace: Is Your House Community or Separate Property in California Divorce and Bankruptcy Court?). An experienced bankruptcy attorney will know how to negotiate with a trustee to buy back the house from a Chapter 7 trustee that was used during the marriage for the lowest price possible.
The Non-Debtor Spouse’s Rights in Chapter 13 Bankruptcy
In a Chapter 13 case, the debtor files a Plan and must get the Plan approved by the Bankruptcy Court at a Confirmation Hearing. As a result of this process, many Chapter 13 plans are poorly written. The provisions of The Plan need to be examined to make sure that the non-filing spouse is receiving his or her due and that the Plan conforms to the Bankruptcy Code and applicable Local and National Bankruptcy Rules.
If the non-filing spouse does not participate in the process, often their rights will be waived or at least compromised. Family law / bankruptcy crossover cases, in particular, can become complicated and messy when not handled properly, however, hiring a skilled attorney who understands family law and bankruptcy early in the process can help avoid the mistakes that inevitably occur when parties represent themselves in court.
Riverside Attorneys Combining Knowledge & Skill in Divorce / Bankruptcy Crossover Issues
Going through a divorce can be an extremely stressful and emotional process, and if your case also involves bankruptcy proceedings, it is crucial you have knowledgeable legal representation to manage the interrelated aspects of both areas. Our firm understands what is involved for both types of cases and can anticipate and address the complex problems that might occur when couples are preparing for divorce, bankruptcy, or both.
Contact Our Experienced Riverside, California Bankruptcy and Divorce Attorneys Now
No matter what stage of the process you are in, you can rely on the experience of our Riverside divorce attorneys in reaching resolutions in your case. Our Southern California family law firm fights hard to make the legal system work for our clients. Call the highly rated and experienced bankruptcy attorney and family law lawyers at Talkov Law today at (951) 888-3300 or contact us online for a free analysis of your situation.