Co-Author Brittany Bonner | [email protected]      Co-Author Mark Wegmann | [email protected] 

Because bankruptcy and family law frequently intersect, it is important that family law practitioners have a basic knowledge of the bankruptcy principles that may apply in their cases. This article discusses the Automatic Stay and its exemptions; the classification of a debt as a Domestic Support Obligation (DSO), and other key bankruptcy practice tips for family law practitioners.

When an individual files for bankruptcy under Chapters 7, 11, or 13, an automatic injunction, known as the Automatic Stay, comes into effect. This stay halts various legal actions and proceedings against the debtor, including those in both judicial and administrative forums, as well as enforcement activities. It also prevents creditors from taking actions to obtain possession of property or to create, perfect, or enforce liens against property belonging to the bankruptcy estate. Even if the debtor doesn’t file a formal notice in state court, the stay remains in effect.

Both the bankruptcy court and state court have authority to determine if the automatic stay applies to a particular action. However, only the bankruptcy court can grant relief from the stay if deemed necessary.

There are certain types of legal proceedings that are exempt from the Automatic Stay, including criminal actions or proceedings against the debtor, establishment of paternity, domestic violence cases, matters related to child custody or visitation, and dissolution of marriage proceedings (except to the extent they pertain to the division of property that is part of the bankruptcy estate). Additionally, actions to collect Domestic Support Obligations (DSO) are also exceptions to an Automatic Stay, including actions to withhold income, suspend or restrict licenses, intercept tax refunds, and to enforce medical obligations.

When determining if a debt qualifies as a DSO, bankruptcy judges consider various factors such as the intention of the parties, the periodicity of payments, and the designated purposes of the payments.  For these reasons, it is essential that the language used in family law agreements and court orders clearly establishes the intent of the parties regarding the nature of the support payments.

Some other key bankruptcy practice tips for family law practitioners to keep in mind include the following: (1) Compare bankruptcy schedules (which include a list of debts, assets, and schedules of income and expenses) with the Family Law Financial Affidavit – especially in connection with contempt proceedings, and remember to advise clients that these documents (whether in bankruptcy or family law) are to be filed under oath; (2) If it isn’t a DSO and it isn’t secured by a lien, any award can be avoided or limited as a general unsecured claim; so, for example, if you monetize an interest in the marital home, make sure the obligation is secured either by an equitable lien or an actual recorded mortgage; (3) Collection efforts, such as contempt, may not proceed against property of the estate; IF IN DOUBT FILE A MOTION FOR STAY RELIEF; and (4) Collection efforts for DSOs can proceed against exempt assets, so make sure that the property is truly exempt under Florida Statutes or that the time for an objection to a debtor’s claimed exemption has passed.