Bankruptcy & Divorce

Feb 5, 2018 | Written by: Diana N. Fredericks, Esq. | Share

I am not a bankruptcy attorney, but, unfortunately, I have had many family law clients in the midst of a bankruptcy during their divorce, custody, or support disputes.  Bankruptcy may have significant impacts upon your family law case.  It is critical that you have counsel in both the bankruptcy and the family law matters, and that those professionals communicate freely and as often as is needed to ensure your protections.

Many litigants believe that a bankruptcy will stay your divorce proceedings.  In other words, if your spouse elected to file bankruptcy (or you do) in the midst of a divorce, it will prevent the courts from presiding over your case and, in fact, will take the matter off of the court’s docket/calendar until the bankruptcy is discharged.  That is true, but only in part. 

It is critical that your attorneys are able to advocate and educate the court, as many family judges may misunderstand what they can or cannot do while a bankruptcy is pending.

There are eleven (11) exceptions to the automatic stay found in 11 U.S. Code § 362.  Those exceptions, in part, specifically provide for proceedings that involve child custody, visitation, the dissolution of marriage (except to the extent that such proceedings seek division of property that is property of the bankruptcy estate), and domestic violence. 

Specifically, 11 U.S. Code § 362 (b) provides, “The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay - (1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor; (2) under subsection (a) - (A) of the commencement or continuation of a civil action or proceeding - (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or (v) regarding domestic violence.” 

44 N.J. Practice, Debtor-Creditor Law And Practice § 4.53, provides, “The filing of a bankruptcy petition does not operate as a stay of the commencement or continuation of various types of actions, including a criminal action against the debtor, civil actions for the establishment of paternity, for the establishment or modification of an order for domestic support obligations, concerning child custody or visitation, for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate, or regarding domestic violence, the collection of a domestic support obligation from property that is not property of the estate, or any act to perfect or to maintain or continue the perfection of an interest in property to the extent that the trustee's rights and powers are subject to perfection.”

Not only does the law carve out a specific exception to the bankruptcy statute to allow Courts to intervene on matters of custody, visitation and domestic violence during the pendency of a bankruptcy, but the Court, in its role of parens patriae, has a duty to act on and adjudicate such issues on their merits and despite the co-occurrence of a bankruptcy.