I significant part of divorce proceedings are dedicated to resolving financial issues, such as child support are the distribution of marital property. However, bankruptcy proceedings can materially change a person’s economic condition by wiping out much of their debt.
So, how does filing for bankruptcy affect the financial aspects of getting a divorce? This blog takes a look at the intersection between bankruptcy and divorce and explains how filing for bankruptcy impacts a person’s child support obligations.
Basics of Bankruptcy
Filing for bankruptcy provides a person with important legal protections to prevent them from becoming too overwhelmed with debt. Chapter 7—also known as “liquidation”—and Chapter 13—also known as “reorganization”—bankruptcy cases let people pay off whatever debts they can afford to, without incurring more debt in the process. This is accomplished through legal relief known as the “automatic stay” and “bankruptcy discharge.”
When a person files for bankruptcy, they trigger the automatic stay period where creditors cannot initiate legal action to collect on outstanding debts from the bankruptcy applicant.
The automatic stay in bankruptcy stops legal actions such as:
- Lawsuits for the collection of debts
- Utility shutoffs
The automatic stay period is an essential part of ensuring that the bankruptcy applicant doesn’t get overburdened with mounting debt.
Another important aspect of bankruptcy is the discharge of certain debts that the applicant owes. This is crucial for certain bankruptcy proceedings by giving the applicant somewhat of a fresh financial start when their bankruptcy case has concluded.
Under a discharge in bankruptcy, debts are considered discharged even if the creditor hasn’t received full repayment.
In general, Bankruptcy discharge applies to the following debts:
- Credit card debt
- Medical bills
- Civil liability for certain lawsuits
- Obligations pursuant to a lease
Bankruptcy and Child Support
Divorce involves several financial issues, including the division of marital property, alimony, and sometimes child custody and support. When a court issues divorce orders, a party may be legally obligated to pay someone else money.
Although this may seem like a debt that can be discharged in bankruptcy, a parent’s obligation to pay child support is excluded from the relief provided by an automatic stay and discharge in bankruptcy.
For the most part, Bankruptcy provides debt relief for financial obligations that arise from a contractual agreement. However, courts have held that a parent’s legal duty to provide financial support for their children to cover things like food, housing, and medical treatment, does not arise from a contract, but rather from the law itself. As a result, the relief provided by bankruptcy does not apply to child support cases.
Furthermore, a lawsuit to determine a parent’s child support obligations are outside the scope of the automatic stay in bankruptcy—in contrast, proceedings regarding the division of marital property are blocked during the automatic stay period.
Consult the Law Office of Tzvi Y. Hagler, P.C.
Bankruptcy can affect important issues in a divorce case, such as the division of marital assets. However, the legal relief that bankruptcy provides does not apply to all financial matters in a divorce case—like child support. If you have any questions or concerns about your property rights in a divorce and the impact that bankruptcy may have on such rights, you should reach out to the Law Office of Tzvi Y. Hagler.
Please call the office at (516) 514-3868 or contact Attorney Hagler online to schedule an appointment about your case today.