The Interplay Between Bankruptcy and Divorce Law in Virginia

Authorized case study: contempt of court

The following is an illustration of the interplay of bankruptcy and divorce law based on real cases in the Circuit Court of Chesterfield County and the Eastern District of Virginia, Richmond Division, Bankruptcy Court, published without names with the client’s authorization.

Husband hired me to represent him in a divorce case in which he had been summoned to show cause why he should not be held in contempt of court for failing to comply with an order of the divorce court.  The order required him to pay the mortgage, utilities and keep his wife and child insured under his health insurance policy.  Husband had not been able to pay the mortgage and was facing a foreclosure sale of the marital residence.

The order had been presented to the court by the wife’s attorney and was entered by the divorce court at the same time Husband’s previous attorney withdrew from the case.  Neither the Husband nor his previous attorney had signed the order.  Husband did not attend the hearing when the order was presented to the court.  The order incorporated a court reporter’s transcript of a deposition at which the parties had discussed the terms of a separation agreement that the wife’s attorney stated she would later prepare for the parties to sign.

In Virginia divorce cases, a court can incorporate into a decree an agreement between the husband and wife.  To be enforceable, the separation agreement, also known as a marital agreement or a property settlement agreement, must be in writing signed by the husband and wife, or contained in a court order signed by the parties or recorded and transcribed by a court reporter and affirmed by the parties on the record personally.  In this case, wife’s attorney claimed that the deposition transcript was an agreement between the parties.

Husband decided to file a chapter 13 bankruptcy case to save the marital residence from foreclosure.  At the same time, we filed a motion to set aside the order incorporating the alleged agreement between the parties.  The divorce court judge postponed a decision on our motion and continued the contempt hearing to allow for the progression of the bankruptcy case.  The case was set for a final hearing several months later on the grounds for divorce, support, child custody and child support, and equitable distribution.

Wife filed an objection to Husband’s chapter 13 case, which was overruled by the bankruptcy court judge.  Wife filed a proof of claim in the bankruptcy case.  We objected to Wife’s proof of claim and the bankruptcy court disallowed it.  Husband sought and obtained relief from the automatic stay to continue his Virginia divorce case.  Husband’s chapter 13 plan was confirmed by the bankruptcy court.

A full hearing was held on all matters related to the divorce case and counsel submitted memoranda of law following the hearing.  Husband lost his job a month later and used his legal right to voluntarily dismiss his chapter 13 bankruptcy case.  Wife’s attorney again scheduled the case for a contempt hearing, claiming that Husband was in violation of the court order incorporating the alleged agreement of the parties.

Six months after Husband hired me, the court set aside the order incorporating the alleged agreement between the parties, holding that the Wife’s counsel’s representations that she would prepare a written agreement created a condition precedent to the formation of a contract between the parties.  Husband’s use of a motion to set aside the order and his chapter 13 bankruptcy protected him from being held in contempt of court for violating the invalid order submitted by Wife’s attorney.

You should consult with your bankruptcy or divorce attorney to determine whether a bankruptcy would serve your best interests during a divorce case.

Do I receive any protection from my spouse’s bankruptcy?

One of the reasons for filing bankruptcy is the protection of the automatic stay, which goes into effect as soon as a case is filed and generally protects the debtor, the debtor’s property, and property of the estate from actions by creditors. In a chapter 7 case, a husband or wife would not receive any personal protection from his or her spouse’s bankruptcy filing. In fact, the automatic stay and the discharge in bankruptcy are personal to the debtor and an unsecured creditor could proceed against the non-filing spouse for the full amount of a joint debt. However, a husband or wife might receive some benefit from the automatic stay with respect to actions by a secured creditor against jointly owned property. For example, if you and your husband or wife were facing a foreclosure auction on your former marital residence, a filing by either spouse may stop the sale.

Chapter 13 is different and includes a codebtor stay that extends the protection of the automatic stay to the nonfiling spouse for consumer debts. The codebtor stay would extend to a spouse, a former spouse, or any person who is liable with the debtor on a consumer debt. The codebtor stay in Chapter 13 was primarily intended to benefit the husband or wife filing bankruptcy by preventing creditors from obtaining a benefit by pressuring codebtors close to the debtor, such as spouses, friends, relatives and fellow employees. The codebtor stay offers little or no benefit to the nonfiling spouse if the spouse filing bankruptcy does not oppose, or cannot successfully defend, a creditor’s motion for relief from the automatic stay. Sometimes creditors have sought relief from the automatic stay in a chapter 13 bankruptcy case in Virginia, but have neglected to seek relief from the co-debtor. Typically, although actions taken in violation of the automatic stay are void, the court will grant relief from the co-debtor stay, finding that the purpose of the codebtor stay is no longer served once the creditor obtains relief from the automatic stay as to the debtor. See, e.g., In re Morris, 365 B.R. 613 (E.D. Va., 2007).

You should discuss with your bankruptcy or divorce lawyer how the bankruptcy of your spouse or former spouse affects you.

Can hostility between a father and mother affect the amount of child support in Virginia?

In an unpublished opinion, the Virginia Court of Appeals affirmed a divorce court’s decision to increase the amount of child support to cover childcare expenses because of the ongoing hostility between the husband and wife.  Kappeler v. Kappeler,  No. 0292-09-4, (October 13, 2009). http://www.courts.state.va.us/opinions/opncavwp/0292094.pdf

 The ex-husband father and ex-wife mother had split joint custody of their children.  The children were enrolled in both before and after school childcare.  The mother filed a motion to increase child support to cover the costs of after school childcare not covered by the divorce decree.  Father also filed a motion to decrease child support.  As required in a motion to modify child support, both parties alleged a material change in circumstances: for the mother, a decrease in income and the desire to establish after school child care when she had custody, and for the father, his willingness and availability to provide such after school care.

The former husband testified in the divorce court that he was available to take the children after school and that after school childcare was not necessary.  The former wife testified that the former husband’s behavior was controlling and invading, with tension, hostility, anger and volatility.  The divorce court found a change in circumstances and granted the mother’s motion to increase child support and denied the father’s motion to decrease child support. The divorce court noted that the children could likely be exposed to the hostility between the mother and father during the daily transfers if the father were permitted to provide after school care.  The Virginia Court of Appeals held that the trial court had not abused its discretion in finding changed circumstances and that the pleadings were legally sufficient to raise the issues for the trial court’s decision.

You should consult with your Virginia family law lawyer to discuss whether hostility with your husband or wife may affect your child support payments.

Is remarriage a basis for modification of child support in Virginia?

A child support order may be modified in Virginia upon a material change in the financial circumstances of either party. The support order may not be modified retroactively, but may be modified from the date notice is received by the responding party. In a Loudoun County Virginia Circuit Court decision, Bruley v. Galer, Chy. No. 44053, October 5, 2009, a judge recognized that remarriage per se is not a basis for a modification of child support, but it may be a basis if the remarriage results in a termination of spousal support. Under Virginia law, spousal support and maintenance will terminate upon the remarriage of the spouse receiving support or the death of either party, unless otherwise provided by an agreement. If the remarriage eliminates the payment of spousal support to the parent receiving child support, then the remarriage is a material change in circumstances affecting the financial situation of both parents.

You should consult with your Virginia divorce or child support lawyer concerning a modification of your child support.

Can a husband be ordered to pay part of his stay-at-home wife’s student loan debts in a Virginia divorce?

The Virginia Court of Appeals upheld a divorce court’s equitable distribution ruling that a husband be ordered to pay 25% of his wife’s student loan debt incurred during the marriage, even though she did not work until after the parties separated, in the unpublished opinion of Layne v. Layne, Record No. 0978-09-3, October 20, 2009, http://www.courts.state.va.us/opinions/opncavwp/0978093.pdf .    The court restated the general rule that debt incurred during the marriage is presumed to be marital debt.  In this case, the wife testified that she used the student loans for household expenses.  Even though husband would not benefit from wife’s education, the family benefited from the proceeds of the student loan debts.

 In addition, the trial court found that the condominium owned by husband before the marriage was hybrid property, part separate and part marital, because the parties had lived in the property for a year and rented it out for several years while they were married.  The divorce court found that the wife’s contributions to the real property were more than nominal and that she should be entitled to share in its appreciation by receiving half the marital share of the property.

You should consult with your Virginia divorce lawyer concerning the equitable distribution of your marital property and debts.

Effective November 1, 2009 for means testing in bankruptcy cases in Virginia, the median income of a household of 1 decreases from $49,689 to $48,362 and the median income for a household of 2 decreases from $65,342 to $65,122.

http://www.usdoj.gov/ust/eo/bapcpa/20091101/bci_data/median_income_table.htm

How long will my spouse’s bankruptcy delay my Virginia divorce?

As discussed in the answer to the question, “Will a bankruptcy filing stop my Virginia divorce case?” http://bankruptcydivorceblawg.com/?page_id=17 , the bankruptcy filing may stop aspects of a Virginia divorce case from continuing.  The length of the delay due to bankruptcy depends upon the type of bankruptcy filed by your husband or wife.

A chapter 7 case typically takes 4 to 5 months from the order for relief on the filing date until the order of discharge.  The automatic stay protecting the debtor, property of the debtor, and property of the estate starts as soon as the case is filed.  The first meeting of creditors is set 20 to 40 days after the filing date.  A creditor may file a complaint objecting to the discharge of the debtor, or a complaint objecting to the dischargeability of a particular debt, by filing an adversary proceeding within 60 days after the meeting of creditors.  If no complaints are filed, the clerk of the court may issue an order of discharge after about 10 days after the 60 day period expires.  Unless a party is granted relief from the automatic stay, the automatic stay expires against property when the property is no longer property of the estate and against the debtor when the discharge is granted or denied in a chapter 7 case or when the case is closed or dismissed.  The chapter 7 trustee may abandon property from property of the bankruptcy estate anytime after the case is filed, although the abandonment is usually announced at the meeting of creditors.  After the automatic stay ends, the debtor will be protected from collection of discharged debts by the discharge injunction.  As discussed in the answer to the question, “Can my spouse discharge a family law debt in bankruptcy?”, http://bankruptcydivorceblawg.com/?page_id=23 , some family law debts can be discharged.

A chapter 13 case will typically last from 3 to 5 years.  In a chapter 13 case, property of the estate includes property acquired while the case is pending and earnings from services performed by the debtor during the case.  Unless otherwise provided in the chapter 13 plan, confirmation of the plan vests all property of the estate in the debtor.  These two provisions may complicate efforts by divorce counsel to address any portion of the debtor’s post-petition earnings or property in a separation agreement or property settlement agreement, particularly since actions taken in violation of the automatic stay may be void or voidable.  The better practice will often be for one of the spouses to file a motion for relief from the automatic stay in the chapter 13 bankruptcy case to continue and conclude the Virginia divorce case.

You should consult with your Virginia bankruptcy or divorce attorney to discuss how long your husband or wife’s bankruptcy will delay your separation or divorce proceedings.

The Bankruptcy Law Network covers bankruptcy law from different perspectives: http://www.bankruptcylawnetwork.com/

Jordan E. Bublick’s South Florida bankruptcy law blawg: http://jbublick.blogspot.com/

Jay Fleishman’s blawg from New York on bankruptcy litigation:  http://www.newyorkbankruptcylitigation.com/

Stephen Worrall’s Georgia Family Law Blog has a great deal of useful content:  http://gafamilylawblog.com/

Sam Hasler’s Indiana Law Divorce and Family Law Blog covers Indiana family law with a personal touch:  http://haslerlaw2.blogspot.com/

Jeremy D. Morley’s International Family Law Blog covers international child custody and family law matters from his New York office:  http://www.internationalfamilylawfirm.com/index.html