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Bankruptcy Law and Family Law

The new bankruptcy law of 2005 (we call this the “new” law because it is the biggest change in the Bankruptcy Code since its inception in 1978) changed the protections that one receives by filing bankruptcy. Under the new bankruptcy law, pretty much all of the types of payment obligations you might obtain in a family court decree are lumped together and called Domestic Support Obligations. This includes child support, alimony, payments on debts one is ordered to pay in a family court decree, and others. I will refer to these in this article as DSOs.

If you file a chapter 7 bankruptcy you cannot discharge a DSO. Understand the basic concept of DSOs versusistock_000000460790xsmall normal debts and how each is created: a DSO is an obligation to your spouse/mother of your child, not to the bank. So, you could file bankruptcy and discharge the obligation you have to the BANK to pay the family VISA card.

However, if a family court has said that you have to pay the VISA and hold your spouse harmless for that payment, then the family court has created a new obligation: an obligation you have to your spouse to pay that VISA bill. When you file a chapter 7 bankruptcy the chapter 7 bankruptcy will discharge the obligation to the bank to pay the VISA bill, but it does not discharge the DSO to your spouse to pay that bill. A chapter 13 will, in many circumstances ALLOW the discharge of this type of DSO, but not any other DSO’s.

You cannot discharge a child support or alimony DSO in any type of bankruptcy. Whatever penalties your spouse can make you suffer in the family court for not paying them, they are still there after you file chapter 7 or 13 bankruptcy.

If you file a chapter 13 bankruptcy you can pay back alimony and child support DSOs in your chapter 13 bankruptcy plan.

However, when you file bankruptcy the automatic stay no longer stops a family court hearing regarding DSOs. Thus, if you are to be held in contempt of family court by your spouse for owing back child support, you can file bankruptcy and maybe pay the arrearage in a chapter 13 bankruptcy plan, but it will not stop any hearings that are set to be held in the family court.

Similarly, filing bankruptcy will not prevent a family court from hearing any action to obtain a divorce or deal with custody or child support issues. This is different from the protection you get from filing bankruptcy with regard to most other types of lawsuits. In those cases, the lawsuit or hearing cannot be held without the party who wants to have the hearing first obtaining permission from the bankruptcy judge.

If you want a family court to hear issues regarding equitable distribution regarding debts or assets, however, you MUST obtain permission from the bankruptcy court to move forward and most family court judges know this and will not let you move forward.

Finally, keep in mind that, if you are getting a divorce and both of you are broke and it is inevitable that neither of you are going to be able to pay your bills after you divorce, then filing chapter 7 bankruptcy before you get divorce may be the solution to your financial problems. However, you need to do it before you are divorced.

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