WHY IS THE AUTOMATIC STAY IMPORTANT IN FAMILY COURT?
The automatic stay is the crucial benefit of filing bankruptcy, immediately stopping most collection efforts against you and your assets. It gives you a crucial legal and emotional break from creditors as you go through the bankruptcy process. The automatic stay applies to both Chapter 7 “straight bankruptcy” and Chapter 13 “adjustment of debts.” See my earlier blog post, The Automatic Stay in a Chapter 7 vs. Chapter 13 Bankruptcy.
If you are involved in any kind of family court proceeding, especially divorce, you likely need protection from your creditors all the more. Filing bankruptcy will give you quick and broad protection from all or most of your creditors.
But how much protection will it give you from those debts that can arise from family court? If bankruptcy’s automatic stay is designed to protect you—at least temporarily—from your creditors, how about protecting you from your spouse, ex-spouse, or other possible family court adversaries?
The short answer is that the automatic stay is effective in stopping some family court debt collection, but not others.
WHAT FAMILY COURT DEBT COLLECTION DOES THE AUTOMATIC STAY STOP?
Start with the fact that in general most kinds of creditor collection actions are stopped by the automatic stay. These include starting or continuing just about any court or administrative proceeding against the person filing bankruptcy “to recover a claim that arose” before the bankruptcy filing. See Section 362(a)(1) of the U.S. Bankruptcy Code. In fact the automatic stay stops virtually “any act to collect, assess, or recover” an existing claim or debt. Section 362(a)(6) of the Bankruptcy Code.
However, there are some debts related to family court whose collection the automatic stay does not stop. The Bankruptcy Code carves out some exceptions to the automatic stay which allow the continued collection of certain family court debts. The statute even specifies which collection methods are allowed.
WHICH FAMILY COURT DEBTS DOES THE AUTOMATIC STAY NOT STOP?
The automatic stay absolutely does not stop the collection of ongoing child or spousal support. This means that regardless of your bankruptcy filing your ex-spouse or a support enforcement agency can continue to collect the support that you legally owe each month. This is true under both Chapter 7 and 13.
WHAT ABOUT PAST-DUE CHILD OR SPOUSAL SUPPORT?
There’s a crucial difference here between Chapter 7 and Chapter 13. Chapter 7 “straight bankruptcy” does not stop the collection of either ongoing OR past-due support obligations. Your ex-spouse/support enforcement agency can begin or can continue collecting support regardless of your Chapter 7 bankruptcy filing.
Chapter 13 is different, enabling you to stop the collection of past-due support obligations. The collection of ongoing child and spousal support continues, but that’s often not a problem because you are obligated by order of the family court to maintain those monthly payments. (You may, however, want to go back to family court to reduce the amount of the ongoing support obligation if your financial circumstances have changed since when the amount was set.)
Chapter 13 DOES stop the collection of past-due support. However, you must nevertheless pay it eventually through your Chapter 13 payment plan. Bankruptcy does not discharge (write-off) support of any kind, so you do need to pay it. However, the crucial benefit of Chapter 13 is that you can pay off the past-due balance essentially on your own schedule. You have to pay the past-due balance by the end of your 3-to-5-year payment plan. But you can pay that based on your budget as well as the needs of your other creditors. (See my earlier detailed discussion about this in my blog post Solving the Child/Spousal Support Dilemma, especially the strict conditions you must meet to prevent the collection of past-due support throughout your Chapter 13 case.)
WHAT FAMILY DEBT COLLECTION METHODS DOES THE AUTOMATIC STAY ALLOW?
The bankruptcy statute allows generally for “the collection of a domestic support obligation” (essentially, court-ordered child or spousal support). Section 362(b)(2)(B) of the federal Bankruptcy Code. This includes collecting by any collection methods that California state law allows. Some examples are the sending of collection letters and phone calls, continued or new garnishment of wages and bank accounts, the recording of a judgment lien on real estate, and the ex-spouse’s referral of the support debt to county support enforcement.
The bankruptcy statutes also list five support collection methods that are specific exceptions to the automatic stay. The following is allowed regardless of a bankruptcy filing:
- “the withholding of income . . . under a judicial or administrative order or statute.” Section 362(b)(2)(C). Refers mostly to paycheck garnishment, or the attachment of other forms of income.
- “the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, under [California] State law. Section 362(b)(2)(D). Is a dangerous type of collection, potentially taking away your ability to drive or to continue working in your profession or occupation.
- “the reporting of overdue support owed by a parent to any consumer reporting agency.” Section 362(b)(2)(E). See 42 U.S.C. 666(a)7) on Reporting of Arrearage to Credit Bureaus.
- “the interception of a tax refund” under federal or state law. Section 362(b)(2)(F). See 42 U.S.C. 664 on the Collection of Past-Due Support from Federal Tax Refunds.
- “the enforcement of a medical obligation” under federal law. Section 362(b)(2)(G).
BESIDES THESE DEBT COLLECTION METHODS, ARE THERE ANY OTHER RELEVANT EXCEPTIONS INVOLVING FAMILY COURT?
This discussion so far has focused on the kinds of family law debt collection that bankruptcy’s automatic stay stops and does not stop. However, the automatic stay does not only stop most debt collection. It also stops most court and administrative proceedings against you. The automatic stay stops “the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced” before the bankruptcy case at issue. Section 362(a)(1). That is, filing a bankruptcy case will stop most lawsuits from being started against you, and will stop ongoing ones.
WHICH FAMILY COURT AND RELATED PROCEEDINGS DOES THE AUTOMATIC STAY PREVENT OR STOP, AND WHICH DOES IT NOT?
In other words, which family court proceedings does the automatic stay apply to and what are the exceptions?
The answer is in the statutory exceptions, because of how the exceptions are worded, as follows.
There are five exceptions. Three of them do not deal directly with assets or debts, which is what bankruptcy focuses on. So understandably since these kinds of proceedings don’t directly affect the bankruptcy case they are not stopped by the automatic stay. Those three exceptions allow “the commencement or continuation of a civil action or proceeding—
(i) for the establishment of paternity;
(iii) concerning child custody or visitation;
(v) regarding domestic violence . . . ”
The fourth exception is related to a debt: the automatic stay does not apply to “the establishment or modification of an order for domestic support obligations”(basically, child or spousal support). Section 362(b)(2)(A)(ii). Bankruptcy law treats child and spousal support with reverence. So not only is the collection of support largely not stopped by the automatic stay (with the key Chapter 13 discussed above), same thing with family court proceedings to either determine or modify the amount of support. (Note that this can be an advantage when you want to go into family court to reduce your support amount while you are in the midst of your bankruptcy case.
DOES THE AUTOMATIC STAY STOP THE DIVORCE PROCEEDING ITSELF?
This gets us to the final exception. The most common family court proceeding is of course divorce, or dissolution of marriage.
Divorce proceedings can continue, with an important caveat. The statute says that “a civil action or proceeding . . . for the dissolution of marriage” can continue. The automatic stay does not apply. That is, it doesn’t apply “except to the extent that such a proceeding seeks to determine the division of property that is property of the estate.” Section 362(b)(2)(A)(iv). (The “property of the estate” is essentially everything that you own as of the time you file your bankruptcy case.)
So the automatic stay stops your divorce case only to the extent that it deals with the division of marital property. But that is one of the key purposes of many, probably most, divorce cases. In those cases the automatic stay prevents—at least temporarily—the divorce case from proceeding, and certainly from finishing.
That can get awkward. You essentially have two courts with jurisdiction over your debts and assets, and they can’t deal effectively with your debts and assets simultaneously. Tell your bankruptcy lawyer right away about any pending or anticipated divorce proceeding so that he or she can advise you appropriately about how to proceed.
ANY FINAL TWISTS?
Can’t let this topic go without a reference to potential criminal proceedings in family law.
Bankruptcy addresses civil proceedings and debts. The automatic stay explicitly does not stop “the commencement or continuation of a criminal action or proceeding against the debtor.” Section 362(b)(1). Any resulting criminal debts—such as fines and restitution—do not get discharged (legally written off) in bankruptcy.
Divorce and other family court proceedings are civil proceedings. However, they can involve proceedings for criminal contempt which would not be subject to or stopped by bankruptcy’s automatic stay.
Criminal contempt in family court arises most from a party’s lack of compliance with a court order. If a party with knowledge of the order and the ability to comply with it fails to do so, he or she can be held in criminal contempt. The violated orders resulting in contempt can include support and custody orders, as well as restraining and protective orders. (See this official form Order to Show Cause and Affidavit for Contempt, as well as the special penalties for contempt in family court under California law. Ca Civ Pro §§ 1218 and 1218.5.)
Most divorce cases do not involve criminal contempt. If yours has or you have reason to expect that it will, tell your bankruptcy lawyer about this early in your initial meeting.
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Orange County and Riverside bankruptcy attorney Norma Duenas has represented more than 3,000 individuals and couples in filing for Chapter 7 and Chapter 13 bankruptcy. Her focus is on ensuring that clients understand how bankruptcy works and whether it is the right option for their unique financial circumstances.
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