Does Bankruptcy Court trump Family Court?

bankruptcy court jurisdictionBankruptcy court authority in the domestic relations arena is limited and very narrow.  Bankruptcy courts cannot grant divorces, decide custody or award support.  Bankruptcy courts have the authority by statute to decide two things:

  • whether an obligation is in the nature of alimony, support or maintenance, regardless of how it is labeled
  • whether a debt is a non-dischargeable property settlement obligation or not, again, regardless of how it is labeled

The bankruptcy court has jurisdiction over all aspects of property of the estate, including the power to decide the rights of the spouse to property. However, most bankruptcy courts will abstain and leave this for the family court.  The bankruptcy court does not have the right to determine the spouse’s rights in assets that are not property of the estate. The bankruptcy court could resolve the division of property in a domestic case, but they routinely refuse to do so, preferring to let the state court make those decisions.

The bankruptcy’s right to decide what an obligation (debt stemming from a domestic action) is, can be vital to whether or not you can wipe out the debt within your bankruptcy case.  It is vital that we take a look at how your obligations are labeled and how the bankruptcy court would approach their decision to ensure you obtain the most benefit from filing a bankruptcy that is possible.