Filing for bankruptcy provides many benefits, the most welcomed of which is the automatic stay that forces creditors to cease all collection activities until the case is concluded. If you're the ex-spouse of someone who has filed for bankruptcy, though, you may be wondering if the automatic stay also applies to enforcing financial agreements outlined in your divorce decree. Whether or not you must comply with an automatic stay order depends on the wording of your separation agreement, the obligation in question, and the exemptions provided by bankruptcy law.
Support vs. Property Settlement Obligations
Although divorce agreements are decided in state courts, the provisions they contain can be superseded by federal laws. This means that if the family court orders your ex-spouse to make monthly payments on a piece of property you were awarded, the debt could potentially be discharged during bankruptcy proceedings, effectively ending that obligation.
However, bankruptcy laws do provide protection for certain financial obligations that may be ordered by family courts. In particular, support orders such as alimony and child support are not dischargeable in chapter 7 or 13 bankruptcies. Additionally, support arrearages are subject to automatic stay orders, support that comes due after the petition is filed is not. This means that if your ex-spouse falls behind in support payments after they file for bankruptcy, you can pursue collection efforts for that money.
Property settlement obligations, on the other hand, aren't as protected. The law has changed to forbid debtors from discharging any debts owed to former spouses or children in a chapter 7 bankruptcy. However, these debts can be discharged during a chapter 13. Debts related to property settlements are also subjected to the automatic stay, so you cannot conduct any collection attempts until after the bankruptcy case has completed.
This is where the wording of a divorce decree becomes critical. If a property settlement (e.g. ex-spouse ordered to pay the mortgage on a home) is obviously intended to be part of a support order, then it will enjoy the protections and freedoms provided to these provisions. If the language of the decree is unclear or indicates the property settlement is separate from a support order, then it will likely be subjected to the bankruptcy laws that govern the type of debt it is.
Automatic Stay Exemptions
The bankruptcy code also provides exemptions from the automatic stay for certain family court procedures. The first allows procedures to determine paternity or set up a support order to continue. Declaring bankruptcy will have no effect on a court's requirement for men to submit to paternity testing. The court can also still order ex-spouses to pay spousal or child support, though collection efforts may be stalled until after the bankruptcy case concludes depending on the specifics of the case.
The second exemption allows an ex-spouse to continue attempting to collect support payments from property that is not included in the bankruptcy estate. This, however, is highly dependent on the type of bankruptcy case that is filed and the source of the money.
For example, a petitioner's wages earned after filing a chapter 7 bankruptcy is not considered part of the bankruptcy estate. Therefore, you can go after those funds for alimony, child support, or other support payments that may be due. However, in a chapter 13 case, the petitioner's wages are used to pay creditors and, as such, considered part of the estate. In this case, you could not touch that money.
When it comes to bankruptcy, you have to be careful in how you proceed. Even if you're certain you are in the right, it's best to consult with a bankruptcy attorney who can advise you on exactly what to do to get the money you are owed without running afoul of bankruptcy laws.