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), 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) 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.
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.
Although a spouse may file a motion to increase child support, the safer course may be to first obtain relief from the automatic stay to continue any 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 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] as modified by 11 U.S.C. 1306(a)(2). Because payments to creditors have to come from the debtor’s post petition earnings, the earnings are property of the Chapter 13 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, except as permitted under under Bankruptcy Code Section 362(b)(2)(B) or (C).
Nevertheless, a spouse or child owed support has additional protections in chapter 13 bankruptcy. Under Section 1325(a)(8) of the Bankruptcy Code, 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), 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 under Bankruptcy Code Section 523(a)(5).
You should consult with your Virginia bankruptcy lawyer to discuss the limits of automatic stay in bankruptcy proceedings.