As bankruptcy lawyers, we’d like to get the world trained to simply halt in their tracks when a bankruptcy is filed and the automatic stay is invoked.
It’s not so simple when there are family law proceedings afoot.
Automatic stay
Section 362(a) enjoins continuation of an action against the debtor to recover a claim or the enforcement of a judgment against the debtor or property of the estate.
Seems straightforward so far.
Then we hit the exceptions.
Support related exceptions
Excluded from the scope of the stay by §362(a)(2) are actions
- to establish or modify support
- concerning custody or visitation
- to terminate marital status
- collecting support from assets not property of the estate
- wage garnishment from property of the debtor
- suspension of licenses granted under state law
- interception of tax refunds due the debtor
With BAPCPA’s advent in 2005, the exceptions to the stay were widened in almost every instance where collection or enforcement of a domestic support obligation ( defined by §101 (14A)) is involved.
Stated broadly, then, family court actions that involve division of property or the enforcement of a judgment dividing property are stayed. Actions to dissolve the marriage or concerning support are not.
The two-court solution in practice
The practicalities when a bankruptcy is filed in the middle of a divorce are more complicated.
State court judges often show such deference to federal law that they are hesitant to go forward on any matter to which the debtor is a party.
I often find myself seeking a comfort order that there is no stay as to a particular proceeding or seeking relief from stay, even when I’m confident that the hearing in question is outside of the stay.
It is easier and quicker to get relief from the stay than it is to risk going into court to have a state judge waiver as to whether it’s permissible to proceed.
When I represent the non filing spouse, I’d rather the bankruptcy judge tell me that my motion, in his view, was not necessary than have the family court judge call a halt and refuse to hear the matter without the bankruptcy court’s blessing.
Exceptions may save debtor money
In a recently filed Chapter 13, I got a smug letter from the attorney at Child Support Services, announcing that the stay didn’t apply to support matters. The garnishment for on going and back child support would continue, he announced.
Well, please don’t throw me into the briar patch.
The continuing wage assignment has just saved my client the trustee’s commission on the back support payments. Because there will be no interruption in payment on the back support, the non dischargeable interest running on the support arrearages will be less.
That works for me.
The Bankruptcy Family Law Series: ♦ Spouses as source of Conflicts ♦ Starting with support ♦ Shadow players with support claims ♦ Non support debts & discharge
>Excluded from the scope of the stay by §362(a)(2) are actions
• wage garnishment from property of the debtor<
Shouldn't there be some sort of qualifier on that?
I think was Cathy was talking about was garnishments on post-petition wages of chapter 7 debtors. Post-petition wages are not property of the estate.
In a chapter 13, however, 1306 pulls post-petition wages into the bankruptcy estate. Whether post-confirmaiton wages are property of the estate depends on the debtor’s election in 1327(b) and still it is not that clear (compare 9th Circuit’s opinion vs. the 9th BAP’s opinion in Cal. Franchise Tax Bd. v Kendall (In re Brenda Jones), 420 B.R. 506 (9th Cir BAP 2009) AND 657 F.3d 921 (9th Cir 2010)).
Though Cathy makes a good point that post-petition wage garnishment may be better for the debtor as it skirts around the Trustee’s administrative fee…but you might want to make sure the debtor can afford the wage garnishment (and that may be something to consider when making the 1327(b) election in the plan).