The Interplay Between Bankruptcy and Divorce Law in Virginia

Will the Automatic Stay in Bankruptcy Stop Family Law Matters?

 When filing a Chapter 7 or 13 bankruptcy petition, an automatic stay provided by Bankruptcy Code section 362(a), http://www.law.cornell.edu/uscode/usc_sec_11_00000362—-000-.html immediately goes into effect which prohibits all creditors’ attempts to pursue collection of a claim against the debtor or against property of the debtor’s bankruptcy estate unless excepted.   Section 362(b) http://www.law.cornell.edu/uscode/usc_sec_11_00000362—-000-.html of the Code provides for certain exceptions, including many family law matters and domestic support obligations.  (Some family law obligations may also be considered priority claims under Section 507(a)(1) of the Bankruptcy Code, entitled to a priority in payment in bankruptcy: http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t09t12+3798+0++%28%29%20%20A  .)

 Specifically, Bankruptcy Code Section 362(b)(2)(A)(ii) provides:

 The automatic stay created by a bankruptcy filing bars the commencement or continuation of most legal proceedings, but it has no effect on a proceeding for-

1) The establishment of paternity

2) The establishment or modification of an order for a Domestic Support Obligation such as child support,              

3) The determination of child custody or visitation issues, or 

 4) The dissolution of marriage, except to the extent that such proceeding may seek to determine a division of marital property in which the bankruptcy estate also has an interest.

 If there is any question about whether a particular family law action would violate the automatic stay, the safest course is to first obtain relief from the automatic stay to pursue or continue the family law matter in state court.  The bankruptcy court will often grant a “comfort order” clarifying that the automatic stay is modified or lifted, or does not apply to certain state law proceedings. 

 While a divorce decree can be granted without first obtaining relief from the automatic stay, the marital property and debts cannot be divided without obtaining such relief.  For example if a spouse files for bankruptcy in the middle of his or her divorce case, the Virginia Circuit Court judge can still continue to hear and decide issues relating to establishing support.  However, with regard to issues of equitable distribution, the divorce court should not proceed without relief from the stay from bankruptcy court order that permits the divorce case to continue.  See In re: Richard J. Dryja http://www.cob.uscourts.gov/opinions%5C09-29007eeb_opinion.pdf where a Bankruptcy Court granted stay relief to allow a divorce court to continue with its action to divide marital property.

 The automatic stay also does not prevent the post-petition collection of Domestic Support Obligations such as alimony or child support.

1) From any property belonging to the debtor, providing that the bankruptcy estate does not also have an interest in said property,

2) Wage deduction orders created by a statute or judicial or administrative order,

 3) From the interception of debtor’s federal or state income tax refunds, or 

4) From the withholding, suspension or restriction of a debtor’s driver’s license or professional or occupational license.

Therefore, there is no protection in U.S. Bankruptcy Court from the obligations imposed by a Domestic Support Obligation in Chapter 7 Bankruptcy, but there may be in Chapter 13 as the estate includes post-petition “earnings.” [11 U.S.C. Section 541 [a][6]] http://www.law.cornell.edu/uscode/uscode11/usc_sec_11_00000541—-000-.html Because payments to creditors have to come from the debtor’s post petition earnings, the earnings are property of the Chapter 13 estate. http://openjurist.org/title-11/us-code/section-1306/property-of-the-estate .  Hence, the claimant seeking to collect support obligations may not be free to pursue the Chapter 13 debtor’s post petition earnings in Circuit Court or the Juvenile and Domestic Relations District Court.

Nevertheless, a spouse or child owed support has additional protections in chapter 13 bankruptcy.  Under Section 1325(a)(8) of the Bankruptcy Code, http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00001325—-000-.html , the debtor must have paid all domestic support obligations that became due after filing under a judicial or administrative order, or by statute, in order to have a chapter 13 plan confirmed.  Under Section 1328(a), http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00001328—-000-.html , in order to receive a discharge after completion of all plan payments, the debtor must certify that he or she paid not only such post-petition domestic support obligations, but also the pre-petition domestic support obligations provided for in the plan.  Finally, domestic support obligations are not dischargeable in either chapter 7 or chapter 13.

You should consult with your Virginia bankruptcy lawyer to discuss the limits of automatic stay in bankruptcy proceedings.

Is a Penalty for Late Payment of Alimony or Spousal Support a Domestic Support Obligation in Bankruptcy?

Not in the case of Smith v. Pritchett, http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&case=/data2/circs/1st/099005.html&friend=nytimes where the United States Court of Appeals for the First Circuit ruled that a $50 a day penalty for late payment of alimony or permanent spousal support was not a nondischargeable “domestic support obligation” under 101(14A). http://www.law.cornell.edu/uscode/uscode11/usc_sec_11_00000101—-000-.html  While this case is not binding authority in the Fourth Circuit, which includes the U.S. Bankruptcy Court for the Eastern District of Virginia, the analysis is useful to an understanding of divorce and bankruptcy law in Virginia.

In Smith, the United States Court of Appeals addressed a divorce agreement (also known as a property settlement agreement or separation agreement) filed jointly by the parties.  The agreement provided that husband would pay wife a $50 fee for each day that he was late in alimony or spousal support payments. Shortly after the divorce agreement became effective, husband appeared to have fallen in arrears and subsequently filed a voluntary petition under Chapter 13 of the Bankruptcy Code. Wife filed a proof of claim for $82,000 in his bankruptcy case. The claim was for $50 per day penalties that had accumulated under the terms of the parties’ divorce agreement since the debtor had been consistently late in his alimony payments. Wife argued that her claim was for a “domestic support obligation” and, was entitled to priority and was nondischargeable under Section 523(a)(5) of the Bankruptcy Code.  http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t09t12+3806+0++%28%29%20%20AND%20%28%2811%29%20ADJ%20USC%29%3ACITE%20AND%20%28USC%20w%2F10%20%28523%29%29%3ACITE%20%20%20%20%20%20%20%20%20 .

The Court disagreed with the ex-wife and ruled that a penalty for late payment of alimony provided in the divorce agreement was not itself alimony and was not a domestic support obligation, so it is dischargeable. The court came to this conclusion by analyzing the divorce agreement which described the penalty as fixed, compared to the monthly alimony payment which ranged from $2,300 to as low as $1,000, depending on the year and if ex-wife remarried. Since the $50 fee was a fixed, the court ruled that the fee had “no connection to the actual alimony owed to Wife.” Furthermore, the court concluded that the fee could not be regarded as having been intended to compensate Wife for any tardiness in receipt of the monthly alimony, but was rather meant as a punitive sanction for late payments. The ex-wife’s claim is a general unsecured claim not entitled to priority status and can be discharged in the husband’s (the debtor’s) bankruptcy.

Hence, a Chapter 13 debtor in Virginia may be able obtain a bankruptcy discharge of late payment penalties assessed pursuant to similar alimony provision in his or her divorce agreement.

You should consult with your Virginia divorce lawyer concerning the likely effects of including a late penalty fee for alimony payments within a divorce agreement.

Could a spouse accused of adultery be at a disadvantage by invoking his or her Fifth Amendment right?

There appears to be a split of authority across the United States on the treatment of a spouse’s right to exercise the Fifth Amendment privilege in divorce proceedings.  In a divorce proceeding, charges of adultery must be proven by “clear and convincing” evidence.  The consequences of proving adultery are quite serious and may result in a spouse being denied spousal support. Where a spouse’s conduct is suspicious, courts will look to see if an explanation has been provided for the conduct. If no reason has been provided, courts will usually draw a negative inference. Black’s Law Dictionary (8th ed.) defines “negative inference” as: “a detrimental conclusion drawn by the fact-finder from a party’s failure to produce evidence that is within the party’s control.” To prevent a negative inference from being drawn should a spouse accused of adultery exercise his or her Fifth Amendment right?

Typically, a court cannot draw a negative inference from a spouse’s invocation of the Fifth Amendment. See Romero v. Colbow 27 Va. App. 88 at 93, 497 S.E. 2d 516 (1988), http://scholar.google.com/scholar_case?case=12867192095528038979&q=romero+v.+colbow&hl=en&as_sdt=80000000000004.  However, it appears that despite the protection afforded by § 8.01-223.1, http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+8.01-223.1 it is possible that a negative inference from exercising the Fifth Amendment can be drawn. In Watts v. Watts 40 Va. App. 865, 581 S.E. 2d 224 (2003),http://scholar.google.com/scholar_case?case=6895239921102550018&q=watts.+v+watts+&hl=en&as_sdt=80000000000004  this is precisely what the Court of Appeals did. In Watts, wife accused her husband of adultery. When deposed, husband invoked his Fifth Amendment right and refused to answer any questions about his new paramour. In a footnote, the court stated that they were “mak[ing] no negative inference” on his exercise of his Fifth Amendment right. However, having found substantial evidence of adultery, the court of Appeals made the following statement: “in doing so [invoking the privilege], husband failed to provide a reasonable explanation for his conduct, a matter about which we do take cognizance.”

Likewise, in Sparks vs. Sparks 768 S.W.2d 563 (1989), http://scholar.google.com/scholar_case?case=13136793046103185410&q=Sparks+vs.+Sparks&hl=en&as_sdt=80000400000004 the Eastern District of the Missouri Court of Appeals held that a wife who invoked her Fifth Amendment privilege was not entitled to the affirmative relief of temporary maintenance and attorney’s fees in her divorce action. Another case that echoed this ruling is Robinson vs. Robinson 615 A.2d 1190 (1992), http://scholar.google.com/scholar_case?case=10057079852008070886&q=Robinson+vs.+Robinson&hl=en&as_sdt=20000004  the Court of Appeals of Maryland held that the court is entitled to draw a negative inference against the spouse who refuses to testify. In Robinson, the wife invoked her privilege and refused to answer a question regarding adultery which led the court to infer that she had indeed committed adultery.

A contrary result was reached in Romero v. Colbow 27 Va. 88, 497 S.E.2d 516 (1998),http://scholar.google.com/scholar_case?case=12867192095528038979&q=Romero+v.+Colbow+&hl=en&as_sdt=80000000000004 a divorce case where the wife invoked her privilege in connection with questions about adultery. The Court of Appeals upheld the commissioner in chancery’s finding that evidence was not “clear and convincing” to prove the wife had committed adultery, despite evidence of the contrary. The commissioner, relying on Code§ 8.01-223.1, http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+8.01-223.1 had said that the wife’s invocation of the Fifth Amendment cannot be used against her.

You should consult with your Virginia divorce lawyer to determine if invoking the Fifth Amendment is in your best interest.

Could wife reopen her bankruptcy case in the Eastern District of Virginia to add her husband’s attorney as a creditor?

Yes under a former local procedure, although it would not make any difference was the holding of the bankruptcy judge in the unpublished case of In re: Cintron, Case No: 00-60937-T, (Bankr. E.D. Va., 9/12/2001).  In the Cintron case, wife filed a chapter 7 bankruptcy case in the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division.  The wife received a chapter 7 discharge and the case was closed.  In accordance with a now repealed Local Rule 1009-1(C) of the Local Rules of Bankruptcy Procedure, wife filed a notice (which the judge treated as a motion) to add her husband’s attorney as a creditor.  Under Federal Bankruptcy Rule 9029, each federal district can make and amend local rules that are consistent with the federal bankruptcy rules. http://www.law.cornell.edu/rules/frbp/rules.htm#Rule9029 .  In the course of the parties’ divorce case, wife had been ordered by the state court divorce judge to pay her husband’s attorney’s fees in a decree, as is permitted by Virginia Code Sections 20-79, http://law.justia.com/virginia/codes/toc2000000/20-79.html , and 20-99, http://law.justia.com/virginia/codes/toc2000000/20-79.html .  The local bankruptcy rule in effect at the time of the Cintron case allowed debtors to add previously unscheduled creditors in a closed bankruptcy case.  The bankruptcy court judge noted that the local rule served two purposes, to give debtors a way to schedule unscheduled creditors and to persuade previously unscheduled creditors that their claims were discharged.  The judge noted that re-opening a case to add a previously unscheduled creditor had no real effect on the dischargeability of a debt.  Section 523(a)(3) of the Bankruptcy Code provides that a debt which requires the filing of a complaint to determine dischargeability, such as a debt based on use of a false financial statement, fraud, defalcation in a fiduciary capacity, larceny, embezzlement, or an intentional injury to another person or another person’s property, is not discharged if the debt was not scheduled or listed in time to file such a complaint, unless the creditor has timely, actual knowledge of the case. http://uscode.house.gov/uscode-cgi/fastweb.exe?getdoc+uscview+t09t12+3806+0++%28%29%20%20AND%20%28%2811%29%20ADJ%20USC%29%3ACITE%20AND%20%28USC%20w%2F10%20%28523%29%29%3ACITE%20%20%20%20%20%20%20%20%20 .  Otherwise, a dischargeable debt will be discharged even though the debt or claim was not scheduled by the debtor.  There is no time limit to determine the dischargeability of a family law debt.  One that is dischargeable would be discharged, regardless of whether it was scheduled, and one that is not dischargeable would not be discharged.

 In Citron, the judge recognized that (under the version of Section 523(a)(5) in effect at that time) if the attorney’s fees owed to the husband were in the nature of support, they would not be discharged in any event.  [Under today’s law, the relevant inquiry would be whether the attorney’s fees were a domestic support obligation nondischargeable under Section 523(a)(5) or a nonsupport family law debt that fits under Section 523(a)(15)]. http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000523—-000-.html .  Both the Virginia Circuit Courts and the U.S. Bankruptcy Court for the Eastern District of Virginia can hear these family law nondischargeability matters – they have “concurrent jurisdiction”, regardless of whether the case was reopened.  In Citron, the judge overruled the husband’s objection to re-opening the case to add the husband’s attorney as a creditor, but noted that it would not make any difference in the outcome.  The comments to the current Local Bankruptcy Rule 1009-1 address the repeal of the previous subsection as follows:  “Paragraph (C) has been removed as it no longer conforms to applicable case law on this subject.” http://www.vaeb.uscourts.gov/files/Rules020510.pdf

You should consult with your Virginia family law lawyer or bankruptcy attorney to discuss whether your particular family law debt can be discharged in bankruptcy.

Is a wife’s claim for equitable distribution in divorce a debt discharged in bankruptcy or an interest in property (part 2 of 2)?

As discussed in the first part of the answer to this question at http://bankruptcydivorceblawg.com/?page_id=339 , there have historically been different approaches in the U.S. Bankruptcy Courts to the treatment of a spouse’s claim for equitable distribution in a bankruptcy case.  Part 1 included a discussion of In re: Scholl, 234 B.R. 636 (Bankr. E.D. Pa., 1999), http://scholar.google.com/scholar_case?case=10815854184867001823&q=In+re:+Scholl&hl=en&as_sdt=80000000000003  and In re: Roberge, 188 B.R. 366 (Bankr. E.D. Va., 1995), http://scholar.google.com/scholar_case?case=9083896502368411336&q=Roberge&hl=en&as_sdt=80000000000003 , which recognized that a spouse’s equitable distribution rights are not a claim discharged in bankruptcy, but rather vested property rights not affected by the spouse’s bankruptcy filing, except for the need to seek relief from the automatic stay to determine those rights in state court.

A contrary result was reached In re: Schorr, 299 B.R. 97 (W.D. Pa. 1993) http://scholar.google.com/scholar_case?case=5242195965445786971&q=In+re:+Schorr&hl=en&as_sdt=80000000000003 , where the U.S. Bankruptcy Court held that a wife’s equitable distribution rights were a claim or a debt discharged in her husband’s bankruptcy case.  In Schorr, the husband filed for a divorce from his wife in state court.  The wife filed an answer requesting equitable distribution and a counterclaim for her own relief.  The husband filed a chapter 7 bankruptcy case before any order had been entered in the state divorce proceeding.  The wife did not file an objection to husband’s claimed exemptions within the 30 days following the conclusion of the meeting of creditors, the deadline set by Bankruptcy Rule 4002(b)(1), http://www.law.cornell.edu/rules/frbp/rules.htm#Rule4003 .  The wife did not file a motion for relief from the automatic stay under 11 U.S.C. 362(d),  http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000362—-000-.html , to continue her request for equitable distribution in the state court divorce case or file an adversary proceeding objecting to the dischargeability of her claim under 11 U.S.C. 523(15),  http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000523—-000-.html . [Although neither of these actions are normally necessary to preserve one’s rights to later pursue a domestic support obligation or other family law debt, sometimes it is preferable.]  The chapter 7 trustee found no non-exempt assets to administer in husband’s bankruptcy and filed a no asset report.

After the husband’s bankruptcy case was concluded and closed, the wife continued her divorce and equitable distribution proceedings in state court.  The husband asserted his discharge in bankruptcy as a defense in state court to wife’s demand for equitable distribution.  The state court judge required the husband to reopen his bankruptcy case for a decision on this crucial issue.  Consequently, the husband filed an adversary proceeding in bankruptcy court for a determination of the dischargeability of wife’s claim for equitable distribution.  The wife denied that her request for equitable distribution was a claim or debt that could be discharged in bankruptcy, relying on the Scholl case discussed in Part 1.

The Schorr court first recognized the danger of collusion when an estranged spouse files bankruptcy – that the debtor spouse may transfer all his or her assets to his or her spouse in the divorce proceeding to gain a divorce rather than lose those assets to the creditors in bankruptcy.  The court then distinguished the Schorr case from the Scholl case.  In contrast to the Schorr case, the non-debtor spouse in Scholl sought relief from the automatic stay to pursue equitable distribution and filed an adversary proceeding against the debtor spouse for a determination that she did not have a claim and that there was no debt to her to be discharged.  The judge in Schorr disagreed, however, with the Scholl court’s holding that, in the absence of a separation agreement or a court order, the non-debtor spouse did not have a claim or debt that would be discharged in bankruptcy.  The Schorr  judge ruled that the wife’s request for equitable distribution was a cause of action and a pre-petition “claim”.  The court noted that the definition of a “claim” in 11 U.S.C. 101(5A) did not require a contract or court order, but simply a right to payment, http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000101—-000-.html .

The court next recognized the public policy argument against the Scholl holding: that the division of marital property in state court would thereby be allowed to take place without any consideration of the effects of such distribution on the creditors.  The judge in Schorr further disagreed with the bankruptcy court judge’s application of the in custodia legis doctrine to marital property in divorce proceedings without the authority of a decision of the highest appellate court of the state.  The Schorr court also disagreed with the impossibility of applying the balancing test required under [the previous version of] 11 U.S.C. 523(a)(15) to determine if a family law debt should be discharged without a prior equitable distribution order, finding it possible if the non-debtor spouse filed an adversary proceeding and re-opened the bankruptcy case after conclusion of the state court equitable distribution.  The court concluded by ruling that the wife had an unliquidated, disputed, unsecured claim that was discharged in her husband’s bankruptcy case.

You should consult with your Virginia bankruptcy or divorce lawyer concerning whether your equitable distribution rights can be discharged in bankruptcy.

Is a wife’s claim for equitable distribution in divorce a debt discharged in bankruptcy or an interest in property (part 1 of 2)?

There appears to be a split of authority across the U.S. on the treatment of a spouse’s claim for equitable distribution in a bankruptcy case.  Pennsylvania, like Virginia, is a marital property state that provides for equitable distribution in divorce cases.  Although the amendments to the Bankruptcy Code in October 2005 with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has altered the treatment of family law debts in bankruptcy by defining Domestic Support Obligations in Section 101(14A), http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000101—-000-.html , and revising two categories of exceptions to discharge of divorce debts in 523(a)(5) and (15), http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000523—-000-.html , understanding these two approaches may prove useful to litigating divorce matters in the Virginia county circuit courts or the U.S. bankruptcy courts in Virginia.  The Third Circuit Court of Appeals declined to decide this split of opinion in the unpublished case of Fox v. Fox, Case No: 06-4075 (3^rd Cir. 2007), http://www.ca3.uscourts.gov/opinarch/064075np.pdf .  The two leading bankruptcy cases cited in that federal circuit illustrating the two different approaches are In re: Schorr, 299 B.R. 97 (Bankr. W.D. Pa., 2003), http://scholar.google.com/scholar_case?case=5242195965445786971&q=In+re:+Schorr&hl=en&as_sdt=80000000000003 , and In re: Scholl, 234 B.R. 636 (Bankr. E.D. Pa., 1999), http://scholar.google.com/scholar_case?case=10815854184867001823&q=In+re:+Scholl&hl=en&as_sdt=80000000000003 .

In the Scholl case, the wife filed for divorce in state court, asking for equitable distribution, pendente lite spousal support, attorney’s fees and costs.  The property subject to equitable distribution included the marital residence, husband’s pension and husband’s Individual Retirement Account (IRA).  The husband filed a chapter 7 case in the federal bankruptcy court in the Eastern District in state.  The husband listed wife as an unsecured creditor in his bankruptcy case with a possible debt from marriage not to include alimony or spousal support.  Pensions and retirement accounts are usually exempt from creditor process, and thereby protected in bankruptcy from administration by the chapter 7 trustee.   The wife filed an adversary proceeding in the husband’s bankruptcy case for a judicial determination that her right to equitable distribution was not dischargeable in husband’s chapter 7 case.  The wife also sought, and was granted, relief from the automatic stay to continue the divorce case in state court.  In her adversary proceeding, the wife contended that she had vested property rights in the state court equitable distribution procedure that were not discharged by the husband’s bankruptcy.  In defense, the husband contended that the wife had a contingent, unliquidated, disputed claim comparable to a tort claim that could be discharged in bankruptcy.  The bankruptcy court judge recognized that marital property subject to equitable distribution is placed under the divorce court’s jurisdiction, held in custodia legis  (“in the custody of the law”) until the conclusion of the state divorce case.  While the definition of a claim in bankruptcy is broad under Section 101 (5)(A), http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000101—-000-.html  , it does not encompass rights that do not include enforceable obligations.  The filing of a divorce action itself does not give rise to a right to payment, so there is no claim to discharge in the subsequent bankruptcy filing.  In resolving the matter, the bankruptcy court judge looked to state law to determine whether the wife had a right to payment or “claim” at the time the bankruptcy case was filed.  In this case, there was no equitable distribution order or separation agreement supporting a right to payment under state law.  Consequently, the judge held that the wife would take her interests in the marital property free of the creditors of husband’s bankruptcy estate, and husband’s interests in the marital property were property of the bankruptcy estate subject to administration unless exempted.

In a supporting footnote, the judge in the Scholl case cited the case of In re: Roberge, 188 B.R. 366 (Bankr. E.D. Va., 1995), http://scholar.google.com/scholar_case?case=9083896502368411336&q=Roberge&hl=en&as_sdt=80000000000003 , an appeal from the U.S.  Bankruptcy Court for the Eastern District of Virginia, Richmond Division.  In the Roberge case, the bankruptcy judge denied the wife’s motion for relief from the automatic stay in her husband’s chapter 7 case in order to allow her to prosecute an equitable distribution in a Florida.  The husband had left the marital residence to move to Virginia, where he obtained an ex parte divorce from the wife, then filed a chapter 7 bankruptcy two months later.  As the Virginia court never had personal jurisdiction over the wife and could not therefore affect her property rights, the wife was able to file an equitable distribution suit in Florida.  The chapter 7 bankruptcy trustee opposed wife’s motion in the bankruptcy court for relief from the stay to pursue her Florida equitable distribution case.  On appeal, the U.S. District Court for the Eastern District of Virginia first recognized that the Florida case was stayed by the husband’s bankruptcy filing.  The court then recognized that the stay may be lifted for cause under 11 U.S.C. 362, http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000362—-000-.html , and that the grant of jurisdiction over bankruptcy matters to the district court allowed the district court to abstain from deciding state law matters in the interest of justice or in the interest of comity or respect for state law under 28 U.S.C. 1334(c)(1), http://www.law.cornell.edu/uscode/html/uscode28/usc_sec_28_00001334—-000-.html . 

The wife argued in Roberge that domestic relations law is essentially state law best left to the state courts to decide.  The bankruptcy trustee argued that the wife’s equitable distribution rights, an unsecured claim in bankruptcy, were cut off by husband’s bankruptcy filing, based on the trustee’s superior avoidance powers as a hypothetical judgment lien creditor under 11 U.S.C. 544, http://www.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000544—-000-.html .  The trustee’s argument depended upon state law that recognized equitable distribution rights as being subject to a prior perfected lien.

The judge disagreed with the trustee’s argument in Roberge, holding that the mere filing of a bankruptcy petition does not divest otherwise vested equitable distribution rights.  The judge recognized that property rights are created and defined by state law and that bankruptcy law generally does not act as substantive law.  While bankruptcy should not be used as a weapon in divorce proceeding, the court was mindful of the possibility of collusion by the spouses to cut off creditors’ rights, so relief from the automatic stay is properly a matter of the discretion of the bankruptcy court judge.  The court noted that the bankruptcy court’s decision would contradict the state’s public policy of fostering marriage, by allowing a spouse to abandon his spouse by obtaining an ex parte divorce and cutting off her equitable distribution rights.  Relief from the stay should have been granted in this case, according to the three part test of the Fourth Circuit Court of Appeals in In re: Robbins, 964 F.2d 342 (4^th Cir., 1992),  http://scholar.google.com/scholar_case?case=9555177988840698448&q=In+re:+Robbins&hl=en&as_sdt=80000000000003 , because domestic law matters are best left to the states to decide, modifying the stay promotes judicial economy, and the creditors would not be prejudiced by allowing equitable distribution to proceed.  The bankruptcy court judge’s decision was reversed on appeal and the case was remanded back to bankruptcy court.

You should consult with your Virginia bankruptcy or divorce lawyer concerning whether your equitable distribution rights can be discharged in bankruptcy.  The answer to this question is completed in Part 2, where a contrary result in the Schorr case is discussed.