Incurring debt is a common feature of U.S. economics that affects everyone. Most people have credit cards, houses, or student loans. However, debt can get out of hand sometimes, causing people to become overwhelmed with financial obligations.
Enter bankruptcy relief. Filing for bankruptcy allows people who have become overwhelmed with debt to reorganize their finances to preserve their own livelihood, so they are not beholden to their creditors indefinitely. Matters of bankruptcy are primarily governed by the federal bankruptcy code and handled by federal bankruptcy courts.
This blog explores the kinds of relief with which filing for bankruptcy provides people—namely the automatic stay and discharge in bankruptcy—and how that might affect those with the legal obligation of financially supporting their children or former spouse.
The Automatic Stay in Bankruptcy
Most individuals will file either a Chapter 7 “liquidation” petition or a Chapter 13 “reorganization” petition. In a Chapter 7, a party known as the bankruptcy trustee assumes control of your assets and property and uses them to repay your creditors. In a Chapter 13, you develop a 5-year repayment plan based on your financial condition.
Although these petitions differ in how to approach bankruptcy, they both provide a period where the petitioner cannot be sued known as the “automatic stay”—a period where creditors are prohibited from taking legal action to enforce and collect their debts from the bankruptcy petitioner. This helps the court and the petitioner figure out a way to take care of most of their debts without incurring additional interest, penalties, or other consequences that could exacerbate the petitioner’s situation.
The automatic stay halts the following proceedings:
- Wage garnishments
- Utility disconnections
Discharge in Bankruptcy
One of the most important results of filing for bankruptcy involves a comprehensive discharge of the petitioner’s debts upon the conclusion of bankruptcy proceedings. Whether one files a Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court is concerned with getting as many creditors paid without completely disrupting the petitioner’s financial future.
Naturally, repaying debts discharge’s your obligations to your creditors. However, all your creditors may not necessarily get repaid during bankruptcy proceedings. Nevertheless, after bankruptcy proceedings are complete, certain debts are discharged regardless of whether the creditor was actually repaid or not.
Debts that are dischargeable in bankruptcy include:
- Credit card debt
- Debts to collection agencies
- Medical bills
- Past-due utility bills
- Repossession deficiency balances
Domestic Support Obligations Are Not Necessarily Debts
Does the automatic stay and discharge in bankruptcy apply to your obligation to financially support your child and spouse? Bankruptcy relief primarily applies to debts that arise from a contractual duty to repay your creditors. However, a person’s duty to financially support their family goes stems from a moral obligation that goes deeper than business transactions.
A parent has a legal duty to care for their children. Most people inherently understand this principle and have no problems complying with their parental responsibilities. Similarly, spouses owe a legal duty to support each other throughout their marriage.
A parent’s duty to take care of their child does not end when a couple gets divorced in California because the parent-child relationship continues to exist. Although divorce ends the marital relationship, a court may order spousal support if a spouse needs it to continue enjoying the standard of living they grew accustomed to while married.
Because domestic support obligations are deeper than a contractual duty, they are not subject to the relief that the automatic stay and discharge in bankruptcy provides. If a parent does not pay child support, or if a former spouse refuses to pay spousal support, it would result in great harm to those people. Bankruptcy relief does not apply to stay or discharge domestic support orders to prevent great harm from befalling families.
Learn More at the Law & Mediation Firm of Klueck & Hoppes, APC
Our legal team has years of valuable legal experience working with both bankruptcy and family law matters, including divorce. You can count on us to provide you with comprehensive legal advice on complex legal issues, such as the effect of bankruptcy on family support obligations.
Call us at (619) 577-4900 or contact us online to schedule a case consultation today.