Articles Posted in Child Support, Alimony, & Other Domestic Debts

Beware of swapping your domestic obligations with your former spouse.  Substituting debts or replacing property that was originally the former spouse’s obligation or asset can bring about unforeseen consequences.

Example:  The former wife was awarded the marital home, and the former husband was required to pay the mortgage until satisfied.  His business began to falter and he could not continue paying the mortgage.  In order to assist him, the former wife agreed to let him use the home as collateral for a new loan, which both parties signed.  In the former husband’s bankruptcy case, his obligation to the former wife was discharged (wiped out) because the new loan constituted a new debt that was not covered by or arising out of the parties’ marital dissolution agreement or divorce decree.  So the former wife’s choices are now to remain responsible for the debts of which the home is collateral or to discuss filing her own bankruptcy.

Please consult with a bankruptswapping moneycy attorney to discuss options to do to deal with debts that are overtaking you for whatever reason. And especially – never, never, never put your home up for collateral to deal with other debts without consulting with a bankruptcy attorney first.  It may seem backwards but there is nobody better to consult with on how to deal with debt (and to try to avoid bankruptcy) than a bankruptcy attorney.  Seeking advice early is the key. In the above example, a lot of heart ache, a home, and possibly even a business could have been spared if this advice had been followed.

 

divorce houseIt is common in a divorce proceeding that involves a marital home and/or vehicles that a property settlement agreement or final judgment obligating one spouse to pay the mortgage or vehicle note will be a part of the divorce decree.  This will constitute a non-dischargeable (can’t be wiped out in a bankruptcy) obligation. BUT, what if, as so often happens, that obligated former spouse fails to pay the debt, the home is foreclosed, or the vehicle repossessed and a deficiency judgment is entered on the balance remaining owed to the mortgage company or the creditor that financed the vehicle?

Example:  The wife was awarded the marital home.  The divorce decree required her to refinance within two years of the divorce, but it was silent as to who (wife or husband) was responsible for paying the current mortgage.  The wife failed to pay the mortgage, the house foreclosed, and a deficiency judgment was entered against the wife AND the husband The wife filed a bankruptcy to wipe out this debt.  He filed a motion requesting an order of non-dischargeability of the wife’s purported obligation to pay the mortgage and deficiency judgment. In other words, he tried to block her ability to wipe this debt out in her bankruptcy – make it “non-dischargeable”.  He lost because the divorce decree was silent as to who should bear the burden of any deficiency that may arise as the result of a foreclosure sale of the parties’ former residence.  So he then would have the choice to pay the deficiency or file bankruptcy himself to wipe out this debt.

Regardless of which side you may be on in such a scenario, it is key to have your bankruptcy attorney review the wording of your divorce decree to advise you on what can / cannot be wiped out in a bankruptcy filing.  And if you are reading this and have not yet finalized your divorce agreements, it is key to always have stated who will be responsible for the current/future note or mortgage, as well as who should bear the burden of a deficiency judgment resulting from any foreclosure or repossession in your divorce decree.

No.  Spendthrift trusts, IRA accounts, 401K plans, and ERISA qualified retirement plans are not property of a bankruptcy estate.  If an asset is not property of the estate, the debtor does not have to claim it as exempt to protect it from the claims of creditors; it is by definition beyond the reach of bankruptcy creditors and the trustee. The bankruptcy filing and the automatic stay would have no impact on the division or settlement of these types of accounts in a divorce proceeding.

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

A garnishment is an order from a court that is sent to your employer requiring them to withhold certain amount of money from your paycheck. This money is then sent to the creditor. Mississippi law limits the amount of money that your creditors can take from your wages to 25%. Most creditors are limited to the 25%, but some creditors like the IRS, State Taxes and Child Support are allowed to get more.

What Is The Process For Getting A Garnishment?

1. A creditor must file a lawsuit against you and serve you with a summons telling you to come to court.

drivers-license-&-id-bigThe “withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, or the reporting of overdue support to a consumer reporting agency, or the interception of a tax refund” are actions that can be taken upon an individual as a penalty for failure to pay support.  These penalties are excepted from the Automatic Stay and can continue despite the initial filing for protection under bankruptcy. However, by filing a Chapter 13 bankruptcy the Chapter 13 plan will provide for payment of the past due amount as well as offer provision for the current and ongoing amount owed to ensure that the debt does not become delinquent at any time during the life of the Chapter 13 plan. Once the Chapter 13 plan is confirmed (you file, attend a 341 hearing approximately 30 days later, then the bankruptcy judge approves the plan approximately 30 days after that thus “confirming” the plan) with payment of the past due support provided in the plan, any continuing action of any of these penalties would be in violation of the confirmed plan and the creditor could be subject to sanctions if they continue any such actions against the debtor.  So bottom line is yes, a Chapter 13 bankruptcy could provide some relief regarding these types of penalties.

jailFiling Chapter 13 bankruptcy can be used to pay past due support over an extended period of time (max of 5 years within a single Chapter 13 plan) and yes, it can protect the debtor from going to jail for previously failing to pay what was due.  It’s important to note that you cannot discharge (wipe out) in any type of bankruptcy (Chapter 7, Chapter 11, Chapter 12, Chapter 13, etc) debts relating to child support, maintenance, alimony, and other domestic support obligations.  Not only will the Chapter 13 plan provide for catching up the past due amounts, but it will also provide for the current and ongoing payments in order to prevent the debtor from becoming behind in support during the Chapter 13 bankruptcy plan period.