In some instances, following a Raleigh divorce or separation, one party will file for bankruptcy. To protect parties from bankruptcy abuse, in 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (hereinafter referred to as “the Act”). The Act changed bankruptcy’s impact on four commonly filed domestic claims that generally arise after spouses separate and prior to a North Carolina divorce. Those claims include child custody, child support, spousal support, and equitable distribution.
Bankruptcy actions are handled in federal court, while divorce and separation is handled in North Carolina state court. When a person files for bankruptcy, an automatic stay is imposed by the federal court, where many state court proceedings are immediately halted. However, some domestic claims are exempt from the automatic stay so that those claims may proceed in state court as the bankruptcy is dealt with in federal court.
Pursuant to § 362(b) of the Act, the filing of a bankruptcy petition does not operate as a stay of the commencement or continuation of several civil proceedings, including those for the establishment or modification of an order for domestic support obligations and those concerning child custody or visitation. The Act defines a domestic support obligation as a debt that is owed to, or recoverable by a spouse, former spouse, or child of the debtor in the nature of alimony, maintenance, or support of such spouse, former spouse, or child of the debtor. Pursuant to this definition, support and spousal support are classified as domestic support obligations. Therefore, under the Act, actions for Raleigh child custody, Raleigh child support, and Raleigh spousal support are exempt from the automatic stay and may be initiated or proceed in state court while the bankruptcy action is pending in federal court.
Many people in the Raleigh believe that if they successfully file bankruptcy, they will no longer be held liable to pay the financial obligations required of them, such as child support and spousal support. The act states that not only may these domestic actions (divorce & separation matters) continue in state court, but upon conclusion of the bankruptcy action in federal court, the spouse who filed for bankruptcy cannot discharge any support obligations. Specifically § 523(a)(5) of the Act states that a discharge under Chapter 7 or Chapter 13 of the Act (which are the two most common types of bankruptcy actions filed by individuals) does not discharge a debtor from any debt for a domestic support obligation. Thus, if the North Carolina state court presiding over the domestic case enters a judgment ordering the spouse who filed for bankruptcy to pay child support or spousal support to the other spouse, the spouse who filed will be required to pay support pursuant to the judgment because domestic support obligations are non-dischargeable debts.
Unlike the three domestic claims discussed above, which may proceed prior to the time the bankruptcy is resolved in federal court, the automatic stay does not apply to Raleigh equitable distribution claims. This means that before commencing or continuing an equitable distribution proceeding or trying to enforce an equitable distribution judgment, the spouse who has not filed for bankruptcy must seek relief from the automatic stay or must wait until the bankruptcy is resolved. Upon resolution of the bankruptcy action in North Carolina federal court, an equitable distribution judgment that is entered in state court may or may not be discharged depending on if the spouse filed for Chapter 7 or Chapter 13 bankruptcy. Under § 523(a)(15) all debts incurred by the debtor through a divorce or separation or in connection with a separation agreement or divorce decree other than those categorized as domestic support obligations (i.e., child support and spousal support) are not dischargeable in a Chapter 7 case. On the other hand, with a Chapter 13 case some, all, or none of an equitable distribution claim filed by the non-debtor spouse may be discharged, depending on the debtor spouse’s confirmed Chapter 13 plan.
Are you filing bankruptsy? Or, did your spouse file and you have questions? To learn more about how bankruptcy impacts your separation and Raleigh divorce, please contact The Law Corner for a consultation at (919)424-8319. Our Raleigh Family Law Attorneys have years of experience working with a variety of clients and cases, we can help you through this process.
The Law Corner divorce attorneys in Raleigh can help explain the divorce process to you and help you with other divorce related issues, to include, but not limited to, the following:
Qualified Domestic Relations Order (QDRO)
The Law Corner Attorneys help people all over Wake County to include the following areas: Knightdale, Wake Forest, Raleigh, Morrisville, Apex, Wendell, Zebulon, New Hope, Cary, Rolesville, Fuquay-Varina, Holly Springs and Garner.