Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

DEBTS DIVORCE AND BANKRUPTCY by sammyc2007

VIEWS: 508 PAGES: 8

This document pertains to divorce advice;legal separation vs divorce;free legal divorce forms;entitled to legal aid for a divorce;free legal help divorce;legal divorce advice;divorce legal advice;divorce legal help; legal aid for divorce;legal advice divorce;legal grounds for divorce;divorce wage garnishment legal limits;online legal divorce

More Info
									                     DEBTS, DIVORCE AND BANKRUPTCY
                           Representing Family Law
                         Clients in a Down Economy
                                                                                  to	the	bankruptcy	solutions	that	may	or	may	not	be	available	to	assist	
                      By Attorneys Mark P. Cornell                                in	resolving	the	client’s	financial	troubles.	
                          and Kelly Ovitt Puc
                                                                                  A revIew of chApter 7 And chApter 13
    IntroductIon                                                                  	 Chapter	7	Bankruptcy	
    	 During	times	of	economic	strength,	divorcing	parties	are	focused	           	 A	chapter	7	bankruptcy	case	is	the	traditional	liquidation	bankruptcy.	
    on	valuing	and	dividing	assets,	typically	the	equity	in	the	former	marital	   In	exchange	for	a	discharge	of	debts,	the	bankruptcy	debtor	submits	
    residence,	financial	assets,	and	retirement	accounts.	In	contrast,	dur-       control	of	his	or	her	assets	to	the	bankruptcy	court.	Assets	which	are	not	
    ing	difficult	economic	times,	divorcing	parties	(and	the	courts)	are	         exempt	under	federal	or	state	law	are	subject	to	sale	by	the	bankruptcy	
    frequently	faced	with	the	more	daunting	task	of	dealing	with	a	marital	       trustee	to	pay	the	creditors	in	the	case.	New	Hampshire	bankruptcy	
    home	with	negative	equity,	either	one	or	both	parties’	inability	to	main-     exemptions	are	fairly	generous	and	in	the	vast	majority	of	chapter	7	
    tain	the	payments	on	the	home	mortgage,	overwhelming	debt	loads	              bankruptcy	cases,	no	assets	are	sold.1	In	most	chapter	7	cases,	the	court	
    and	declining	retirement	values.	In	short,	parties	are	often	arguing	over	    issues	a	discharge	order	and	the	case	is	closed	in	approximately	six	
    allocation	of	debts	instead	of	distribution	of	assets.	                       months.	
    	 In	the	current	economic	downturn,	divorcing	couples	are	also	               	 With	the	passage	of	the	Bankruptcy	Abuse	and	Consumer	Protec-
    faced	with	the	recent	decline	in	the	real	estate	market.	As	a	result,	        tion	Act	of	2005	(BAPCPA),	Congress	added	“Means	Testing”	into	the	
    divorcing	couples	may	be	unable	to	sell	the	former	marital	residence	         Bankruptcy	Code.2	The	Means	Test	is	intended	to	gauge	the	debtor’s	
    due	to	negative	equity	in	the	property.	It	may	be	that	neither	party	can	     ability	to	repay	some	or	all	of	his	or	her	debts.	In	order	to	be	eligible	to	
    make	payments	on	the	former	marital	residence,	and	thus	are	unable	           file	a	chapter	7	bankruptcy	case,	debtors	must	“pass”	the	Means	Test.	
    to	maintain	the	debt	service	on	the	former	home	or	sell	it.	Even	when	        If	the	debtor	is	filing	a	chapter	13	bankruptcy	case	(discussed	below),	
    one	of	the	parties	is	financially	able	to	maintain	the	payments	on	the	       the	Means	Test	may	be	used	to	determine	what	portion	of	the	debtor’s	
    former	home,	he	or	she	may	be	unable	to	refinance	the	mortgage	to	            income	is	actually	available	to	fund	a	chapter	13	plan	and	the	duration	
    remove	the	former	spouse’s	name	due	to	a	lack	of	equity	and	tighter	          of	the	plan.3	
    lending	practices.	                                                           	 The	Means	Test	considers	all	income	received	by	the	debtor	and	the	
    	 Another	common	problem	during	an	economic	downturn	is	that	                 debtor’s	spouse	from	any	source	during	the	six	complete	calendar	months	
    the	parties	cannot	make	payments	on	unsecured	debts,	such	as	credit	          prior	to	the	bankruptcy	filing.4	The	income	received	by	the	debtor’s	spouse	
    card	debt,	during	or	after	their	divorce.	These	debts	may	have	been	          is	included	even	if	the	spouse	does	not	file	for	bankruptcy.5	However,	the	
    incurred	or	increased	during	a	period	of	unemployment	or	underem-             debtor	may	make	a	marital	adjustment	to	deduct	spousal	income	that	is	
    ployment.	Parties	may	rely	on	credit	during	the	financially	difficult	        not	contributed	to	household	expenses.6	Furthermore,	where	the	debtor	
    transition	from	one	household	to	two	households.	The	costs	of	the	            is	separated	from	his	or	her	spouse,	his	or	her	spouse’s	income	may	be	
    divorce,	including	attorney	fees,	may	have	been	financed.	The	allocation	     excluded.7	The	debtor	is	also	allowed	to	deduct	certain	expenses	on	the	
    of	these	debts	can	be	problematic	during	a	divorce.	                          Means	Test,including	court-ordered	support	payments.8
    	 All	of	these	factors	increase	the	likelihood	that	one	or	both	parties	
    may	consider	filing	bankruptcy	either	during	or	following	a	divorce.	         	 Chapter	13	Bankruptcy	
    This	article	is	intended	to	assist	both	the	family	law	practitioner	and	      	 In	contrast	to	a	chapter	7	bankruptcy,	a	chapter	13	bankruptcy	case	
    the	bankruptcy	practitioner	in	identifying	and	addressing	issues	raised	      is	intended	to	allow	a	debtor	with	regular	income	to	repay	debts	under	
    when	divorce	and	bankruptcy	intersect.	This	discussion	assumes	little	        court	supervision.	The	debtor	submits	a	repayment	plan	for	approval	of	
    or	no	prior	knowledge	of	bankruptcy	law.	In	the	best-case	scenario,	the	      the	court	that	calls	for	the	repayment	of	some	or	all	of	his	or	her	debts	
    information	provided	will	allow	divorce	counsel	to	proactively	address	       over	a	three-to	five-year	period.9	Instead	of	paying	his	or	her	creditors	
    these	potential	issues	in	a	manner	that	is	beneficial	to	both	parties.	       directly,	the	debtor	makes	a	payment	to	the	chapter	13	trustee,	who	
    Where	this	is	not	possible,	counsel	can	also	advise	his	or	her	clients	as	    disburses	these	payments	to	the	creditors	under	the	terms	of	the	chapter	


	      	 22		                                                 New Hampshire Bar Journal                                                       Fall 2009
13	plan.	The	amount	of	the	payment	to	the	chapter	13	trustee	depends	               	 Exceptions	to	the	Automatic	Stay	
upon	a	number	of	factors.	Upon	completion	of	the	chapter	13	plan,	the	              	 Although	the	automatic	stay	is	broad,	there	are	some	statutory	excep-
court	issues	a	discharge	order	that	applies	to	any	remaining	balances	              tions	and	the	automatic	stay	does	not	prohibit	all	family	law	litigation	
on	the	debts	included	in	the	bankruptcy.	                                           or	collection	activity.22	In	particular,	the	automatic	stay	does	not	apply	to	
	 One	of	the	major	advantages	of	filing	a	chapter	13	case	is	to	deal	with	          actions	to	determine	paternity,actions	to	establish	or	modify	a	domestic	
mortgage	defaults	and	to	avoid	foreclosure.	If	the	debtor	is	behind	on	a	           support	 obligation,	actions	concerning	child	custody	or	visitation,or	
mortgage	or	other	secured	debt,	the	debtor	can	propose	a	plan	to	cure	the	          domestic	violence	actions.23	24	25	In	addition,	the	automatic	stay	does	not	
arrearage	on	the	secured	debt	over	the	life	of	the	chapter	13	plan.10	The	          apply	to	an	action	to	grant	a	divorce,	to the extent such action does not
debtor	often	proposes	to	pay	the	regular	(post-petition)	payments	on	an	            also involve the division of property that is property of the bankruptcy
ongoing	basis	directly	to	the	secured	creditor	and	then	pay	the	amount	of	          estate.26
the	arrearage	through	the	chapter	13	plan.	The	debtor	can	file	a	chapter	           	 Whether	the	automatic	stay	applies	to	collection	or	enforcement	of	
13	case	at	any	time	prior	to	the	completion	of	the	sale	to	a	high	bidder	           a	domestic	support	obligation	can	be	tricky.27	The	exception	cited	above	
at	a	foreclosure	sale.11	The	debtor	will	normally	be	responsible	for	the	           for	actions	involving	domestic	support	obligations	is	only	as	to	estab-
payment	of	the	attorneys’	fees	and	costs	associated	with	the	foreclosure	           lishment or modification	of	the	obligation.	A	separate	exception	exists	
sale.12	The	effect	of	such	a	plan	is	to	force	the	lender	to	start	accepting	        for	collection	of	a	domestic	support	obligation	but	only	from	property	
regular	monthly	payments	and	to	allow	the	debtor	to	cure	the	payment	               that	is	not	property	of	the	bankruptcy	estate.28	In	a	chapter	7	case,	the	
default	through	a	three-to	five-year	payment	plan.	                                 bankruptcy	estate	is	generally	limited	to	property	held	by	the	debtor	at	the	
                                                                                    time	of	filing,	and	efforts	to	collect	a	domestic	support	obligation	from	
	 The	Discharge	Order	                                                              post-petition	income	or	property	do	not	implicate	the	automatic	stay.29	
	 The	discharge	order	entered	in	either	a	chapter	7	or	a	chapter	13	case	           However,	in	a	chapter	13	case,	the	debtor’s	post-petition	income	and	all	
generally	prohibits	any	of	the	debtor’s	pre-bankruptcy	creditors	from	at-           assets	acquired	post-petition	are	property	of	the	bankruptcy	estate,	so	
tempting	to	collect	the	unpaid	balances	of	their	claims	from	the	debtor.13	         efforts	to	collect	a	domestic	support	obligation	from	a	chapter	13	debtor	
However,	where	a	debt	is	secured	by	the	debtor’s	assets,	as	in	the	case	of	         would	likely	be	within	the	scope	of	the	automatic	stay.30
a	mortgage	or	car	loan,	these	security	interests	generally	pass	through	            	 There	are	also	statutory	exceptions	for	several	actions	in	support	
bankruptcy	unaffected.14	Furthermore,	a	non-filing	spouse	or	ex-spouse	             of	collection	of	domestic	support	obligations:	withholding	income	to	
will	receive	no	protection	from	the	debtor’s	bankruptcy	discharge.15	               pay	a	domestic	support	obligation	pursuant	to	a	judicial	or	administra-
Therefore,	to	the	extent	that	the	non-filing	spouse	is	personally	liable	           tive	order	or	statute;	withholding,	suspending	or	restricting	a	license;	
on	the	debts	discharged	in	the	debtor’s	bankruptcy	filing,	the	non-filing	          reporting	overdue	child	support	to	a	consumer	reporting	agency;	the	
spouse	will	remain	liable.	The	debtor’s	creditors	will	likely	seek	to	collect	      interception	of	a	tax	refund;	and	the	enforcement	of	a	medical	support	
upon	their	claims	from	the	non-filing	spouse	to	the	extent	that	he	or	she	          obligation.31
is	liable	on	those	claims	under	state	law.	
                                                                                    	 Relief	from	the	Automatic	Stay	
the AutomAtIc StAy                                                                  	 A	creditor	may	seek	relief	from	the	automatic	stay	in	order	to	pursue	
	 Upon	the	filing	of	a	bankruptcy	petition,	an	automatic	stay	goes	into	            a	claim	against	the	debtor.32	33	The	court	will	grant	relief	from	the	stay	
effect	which	applies	to	all	creditors,	including	a	spouse	or	former	spouse	         where	it	finds	there	is	adequate	“cause.”	The	Bankruptcy	Code	does	not	
of	the	debtor.16	The	automatic	stay	prohibits	creditors	from	attempting	            define	“cause,”	giving	the	court	broad	discretion	to	determine	whether	
to	collect	claims	against	the	debtor	or	against	property	of	the	debtor’s	           cause	exists	to	lift	the	stay	on	a	case-by-case	basis.	
bankruptcy	estate.17	Specifically,	the	stay	prohibits	the	commencement	             	 Most	motions	for	relief	are	filed	by	secured	creditors	seeking	permis-
or	continuation	of	judicial	actions	or	proceedings;	the	enforcement	of	             sion	to	foreclose	or	repossess	their	collateral.	However,	in	a	case	involving	
judgments;	attempts	to	obtain	possession	of	property;	the	creation,	18	             domestic	issues,	a	motion	for	relief	may	be	required	to	proceed	with	the	
perfection	or	enforcement	of	liens,	as	well	as	other	collection	attempts.	          divorce	case,	collect	temporary	support	or	otherwise	provide	more	im-
Thus,	filing	a	bankruptcy	petition	is	likely	to	halt	pending	divorce	or	            mediate	relief	to	the	non-debtor	spouse.34
post-divorce	proceedings.	                                                          	 Completion	of	pending	domestic	relations	matter	in	state	court	
	 As	to	actions	against	the	debtor,	the	automatic	stay	lasts	until	the	             is	often	considered	sufficient	cause	to	grant	relief	from	the	stay.35	In	a	
earliest	of	(1)	the	time	the	case	is	closed,	(2)	the	time	the	case	is	dismissed,	   chapter	13	case,	the	bankruptcy	court	may	be	particularly	willing	to	grant	
or	(3)	the	time	the	debtor’s	discharge	is	granted	or	denied.19	As	to	actions	       relief	from	stay	to	allow	a	state	court	to	determine	the	debtor’s	domestic	
against	property	of	the	bankruptcy	estate,	the	automatic	stay	lasts	until	          support	obligations.	In In re Pidgeon,	the	bankruptcy	court	noted	the	
the	property	is	no	longer	property	of	the	estate.20	Property	is	no	longer	          circuitous	problem	of	calculating	the	debtor’s	income	available	to	fund	
property	of	the	bankruptcy	estate	when	the	case	is	closed	or	sooner,	if	            a	chapter	13	plan,	when	the	debtor’s	non-dischargeable	domestic	sup-
the	trustee	affirmatively	abandons	such	property.21	The	court	also	has	             port	obligation	expense	had	yet	to	be	determined	in	the	pending	divorce	
the	authority	to	lift	or	modify	the	stay	upon	motion	of	the	creditor,	as	           proceeding.36	The	bankruptcy	court	granted	relief	to	allow	the	divorce	
discussed	below.	                                                                   action	to	go	forward,	holding	that	only	after	the	state	court	had	entered	
                                                                                    a	final	order	would	the	bankruptcy	court	be	in	a	position	to	consider	

   Fall 2009                                                     New Hampshire Bar Journal                                                          	      	 23		   
    plan	confirmation.37                                                              treatment	in	bankruptcy.	Precisely	how	they	are	treated,	however,	is	
    	 A	creditor	seeks	relief	from	stay	by	filing	a	motion	for	relief	in	the	         determined	both	by	the	characterization	of	the	debt	and	whether	the	
    bankruptcy	court	along	with	a	filing	fee.38	The	procedural	requirements	          debtor	is	in	a	chapter	7	or	a	chapter	13	bankruptcy.	
    for	filing	and	service	of	the	motion	are	governed	by	Bankruptcy	Rule	             	 The	bankruptcy	code	distinguishes	between	two	types	of	debts	that	
    4001	and	LBR	4001-1.		Failure	to	comply	with	these	procedural	rules	              may	arise	as	the	result	of	a	divorce.	The	first	type	is	a	Domestic	Support	
    may	result	in	the	denial	of	the	motion.	The	court	will	grant	the	motion	          Obligation	(DSO),	statutorily	defined	in	the	Bankruptcy	Code,	as	dis-
    without	a	hearing	if	counsel	for	the	debtor	files	an	assent	or	fails	to	object	   cussed	further	below.53	All	other	debts	that	arise	pursuant	to	a	divorce	or	
    to	a	motion	for	relief	at	least	seven	days	before	the	hearing	date.39	Pro	        separation	agreement	and	which	are	not	a	Domestic	Support	Obligation	
    se	debtors	are	excluded	from	this	rule.40	41	Otherwise,	a	hearing	on	the	         are	considered	to	be	ordinary	debts	owed	to	a	former	spouse.	
    motion	will	be	held	within	30	days.	                                              	 Section	523(a)(5)	excepts	DSOs	from	discharge,	regardless	of	
    	 The	initial	hearing	on	a	motion	for	relief	may	be	preliminary	in	               whether	the	debtor	has	filed	a	Chapter	7	or	a	Chapter	13	bankruptcy.54	
    nature	or	it	may	be	a	final	hearing.42	The	parties	explain	their	positions	       Section	523(a)(15)	excepts	all	other	debts	arising	from	a	divorce	or	settle-
    by	offers	of	proof	and	the	Court	will	either	schedule	the	case	for	an	            ment	agreement	from	discharge,	but only in a chapter 7 bankruptcy.55	
    evidentiary	hearing	or	issue	an	order	if	the	facts	are	not	contested	or	the	      Thus,	one	of	the	key	differences	between	a	chapter	7	case	and	a	chapter	
    contested	facts	will	have	no	effect	on	the	court’s	decision.	The	Court	must	      13	case	is	the	scope	of	the	discharge.56	The	debtor	may	obtain	a	broader	
    generally	enter	a	final	order	within	60	days,	or	the	automatic	stay	will	         discharge	in	a	chapter	13	bankruptcy	case,	as	only	domestic	relations	
    be	lifted	and	the	creditor	may	then	proceed	with	collection	efforts.    43
                                                                                      debts	which	qualify	as	DSOs	are	excluded	from	the	debtor’s	chapter	13	
                                                                                      bankruptcy	discharge.57	As	a	result,	if	the	debtor	owes	divorce-related	
    	 Violations	of	the	Automatic	Stay	                                               debts,	the	type	of	bankruptcy	case	filed	may	have	significant	repercus-
    	 The	consequences	for	violating	the	automatic	stay	can	be	quite	                 sions.	
    severe.	If	a	creditor	violates	the	automatic	stay,	even	if	the	creditor	          	 DSOs	are	given	preferential	treatment	in	other	ways	too.	In	a	chapter	7	
    was	unaware	of	the	bankruptcy,	the	collection	action	is	voided.44	If	the	         case,	if	there	are	assets	available	for	distribution	to	unsecured	creditors,	DSOs	
    violation	is	willful,	the	debtor	is	entitled	to	an	award	of	actual	damages	       are	entitled	to	be	paid	first	among	unsecured	debts.58	This	priority	status	does	
    plus	attorneys’	fees,	and	in	appropriate	cases,	the	court	may	even	award	         not	apply	if	the	DSO	has	been	voluntarily	assigned	to	a	governmental	unit	
    punitive	damages.45	A	violation	of	the	automatic	stay	is	“willful”	if	            for	the	purposes	of	collecting	the	debt.59	In	a	chapter	13	case,	a	DSO	must	
    the	creditor	“(1)	has	knowledge	of	the	petition,	and	(2)	the	act	which	           be	paid	in	full	over	the	life	of	a	chapter	13	plan,	whereas	ordinary	debts	
    violates	the	stay	was	intentional.”46	The	creditor	need	not	intend	to	vio-        owed	to	a	former	spouse	are	paid	along	with	other	non-priority	unsecured	
    late	the	automatic	stay	and	the	creditor’s	good-faith	belief	that	it	has	a	       debts,	often with a minimal distribution under the chapter 13 plan.60	
    right	to	certain	property,	or	a	right	to	take	a	certain	action,	is	generally	     If	the	DSO	has	been	assigned	to	a	governmental	unit,	then	the	debtor	may	
    irrelevant.47                                                                     pay	less	than	100	percent	of	the	61	debt	if	all	disposable	income	is	paid	into	
    	 The	automatic	stay	also	imposes	a	duty	on	a	creditor	to	return	to	the	          a	five-year	plan.	In	addition,	the	debtor’s	post-petition	payments	on	DSOs	
    status	quo	when	the	creditor	acts	in	violation	of	the	automatic	stay	but	         must	be	current	in	order	for	the	bankruptcy	court	to	confirm	a	Chapter	
    without	knowledge	of	the	bankruptcy	filing.	Failure	to	return	the	status	         13	plan,62	and	the	debtor’s	failure	to	keep	such	payments	current	during	
    quo	is	also	a	willful	violation.48	The	debtor	is	also	entitled	to	injunctive	     a	pending	Chapter	13	case	is	grounds	for	dismissal	or	denial	of	discharge	
    relief	when	necessary	to	return	the	status	quo.	For	example,	the	debtor	          upon	plan	completion.63	64
    can	seek	an	order	compelling	the	creditor	to	return	an	asset	seized	in	
    violation	of	the	automatic	stay.	                                                 	 What	is	a	Domestic	Support	Obligation?	
                                                                                      	 The	term	“Domestic	Support	Obligation”	is	defined	in	Section	
    treAtment of dIvorce-relAted                                                      101(14A)	of	the	Bankruptcy	65	code.	Essentially,	there	are	four	statutory	
    debtS In bAnkruptcy                                                               requirements	that	must	be	satisfied	for	a	debt	to	be	characterized	as	a	
    	 Even	if	a	debtor	is	granted	a	general	discharge	of	debts,	certain	debts	        DSO.	
    may	be	excepted	from	discharge	under	Section	523	of	the	Bankruptcy	               	 First,	the	debt	must	be	owed	to	or	recoverable	by	a	spouse,	former	
    Code.49	One	commonly	known	exception	to	discharge	in	bankruptcy	is	               spouse,	child,	child’s	parent	or	legal	guardian,	or	a	governmental	entity.66	
    student	loans.	In	addition,	domestic	relations	debts	are	often,	but	not	          Note	that	the	debt	need	not	be	directly	payable	to	the	above	individuals,	as	
    always,	nondischargeable.50                                                       long	as	it	recoverable	by	one	of	them.67	One	court	has	stated	that	a	debt	
    	 The	treatment	of	domestic	relations	debts	in	bankruptcy	involves	               is	recoverable,	“if	the	right	to	payment	of	a	person	not	within	that	class	
    the	conflict	of	two	established	public	policies.	On	one	hand,	“the	pur-           can	be	reduced	to	a	monetary	judgment	or	independently	collected	by	a	
    pose	of	the	bankruptcy	laws	is	to	provide	much	needed	relief	from	the	            person	within	the	class,	for	the	benefit	of	the	person	within	the	class.”68	
    burden	of	[the	debtor’s]	indebtedness	by	releasing	him	from	virtually	all	        Accordingly,	a	debt	awarded	to	the	debtor-spouse	in	a	divorce	decree	but	
    his	debts.”51	On	the	other	hand,	there	is	a	long-standing	public	policy	          payable	to	a	third	party	creditor,	such	as	a	credit	card	company,	may	nev-
    of	recognizing	and	enforcing	an	individual’s	duty	to	support	family	              ertheless	be	characterized	as	a	DSO.69	In	addition,	a	governmental	entity	
    dependents.52	Accordingly,	domestic	relations	debts	are	afforded	special	         that	has	provided	support	to	the	debtor’s	dependent	may	hold	a	DSO,	
                                                                                      even	though	the	other	parent	could	not	seek	recovery	of	the	debt.70

	      	 24		                                                    New Hampshire Bar Journal                                                           Fall 2009
	 Second,	the	debt	must	actually	be	in	the	nature	of	alimony,	mainte-          consideration	to	such	characterization	in	making	a	dischargeability	
nance	or	support,	regardless	of	how	it	is	designated	in	the	divorce	decree	    determination.	In	contrast,	if	the	state	court	makes	a	determination	as	
or	separation	agreement.71	The	critical	issue	in	determining	whether	a	        to	the	dischargeability	of	the	debt	after	the	bankruptcy	filing,	such	de-
debt	is	in	the	nature	of	alimony,	maintenance	or	support	is	the	purpose	       termination	will	preclude	re	determination	by	the	bankruptcy	court.87	
which	the	state	court	or	the	parties	intended	the	payment	to	serve.72	The	
First	Circuit	has	characterized	domestic	support	payments,	(payments	          	 Discharge	of	Attorneys’	Fees	Awards	
in	the	nature	of	alimony,	maintenance,	or	support)	as	“what	is	given	          	 Attorneys’	fees	incurred	in	enforcing	a	divorce	related	obligation	
to	provide	for	the	upkeep	of	the	recipient	spouse	and	children	...	while	      generally	follow	the	characterization	of	that	obligation.	In	other	words,	
other	divisions	or	payments	serve	different	purposes.”73	Whether	an	           if	the	underlying	obligation	was	intended	to	serve	as	support,	then	the	
obligation	to	a	former	spouse	is	actually	in	the	nature	of	support	is	a	       attorneys’	fees	incurred	in	enforcing	the	obligation	will	also	be	consid-
matter	of	federal	law,	and	not	state	law,	regardless	of	the	labels	attached	   ered	support.	Therefore,	fees	awarded	as	a	result	of	efforts	to	enforce	a	
to	the	debt	by	state	law.74	                                                   support	obligation	are	frequently	found	to	be	non-dischargeable.	88	In	
	 Courts	consider	several	factors	in	order	to	discern	the	purpose	which	       In	contrast,	attorneys’	fees	incurred	to	enforce	a	property	settlement	may	
the	state	court	or	the	parties	intended	the	payment	to	serve.75	The	First	     be	dischargeable.	Where	the	attorneys	fee	award	is	part	of	the	divorce	
Circuit	has	declined	to	establish	a	fixed	set	of	standards	determining	        or	separation	order	(rather	than	a	subsequent	enforcement	action),	the	
which	factors	should	be	considered,	because	“[a]s	in	all	fact-intensive	       bankruptcy	court	must	determine	whether	the	state	court	intended	the	
queries,	the	critical	factors	depend	on	the	totality	of	circumstances	of	      award	to	serve	the	purpose	of	support.	Even	then,	attorneys	fees	awarded	
a	particular	case.”76	However,	the	Bankruptcy	Court	for	the	District	of	       are	often	found	to	be	in	the	nature	of	support	and	non	dischargeable,	
New	Hampshire	has	historically	looked	to	three	key	factors:	“(1)	the	          as	they	often	result	from	the	state	court’s	balancing	the	financial	need	
language	and	substance	of	the	agreement	or	order;	(2)	the	relative	            of	the	parties.90
financial	circumstances	of	the	parties	at	the	time	of	the	agreement	or	
order;	and	(3)	how	the	payment	at	issue	is	structured	(e.g.,	whether	it	is	    AvoIdAnceS
a	periodic	or	lump	sum	payment,	or	whether	payment	terminates	upon	
the	occurrence	of	a	future	contingent	event).”77	Changes	to	the	parties’	      	 Pre-bankruptcy	transfers	of	interests	in	property	(including	security	
circumstances	after	the	obligation	was	created	are	largely	irrelevant	to	      interests)	may	sometimes	be	avoided	in	bankruptcy	in	order	to	restore	
the	analysis.78                                                                the	bankruptcy	estate	to	what	it	would	have	been	absent	the	transfer.	The	
	 Third,	the	debt	must	be	established	or	subject	to	establishment	based	       occurrence	of	the	transfer	in	the	context	of	a	divorce	does	not	automati-
on	provisions	in	a	separation	agreement,	divorce	decree,	property	settle-      cally	immunize	it	from	scrutiny	as	a	possible	avoidable	transfer.91	
ment	agreement,	court	order	or	determination	of	a	governmental	unit.79	        	 One	example	of	such	avoidable	transfers	are	“fraudulent	trans-
The	agreement	or	order	need	not	contain	a	specific	provision	creating	         fers”	under	11	U.S.C.	§548,	although	a	fraudulent	intent	is	not	always	
the	obligation,	as	long	as	it	gives	rise	to	the	obligation.80	For	example,	    necessary.	Specifically,	the	bankruptcy	trustee	can	avoid	a	transfer	made	
a	state	court	determination	such	as	a	paternity	order,	even	if	the	order	      within	two	years	preceding	the	bankruptcy	filing,	if	(A)	the	transfer	was	
itself	does	not	provide	for	support	obligations,	is	sufficient	to	give	any	    made	with	actual	intent	to	hinder,	delay	or	defraud	any	current	or	future	
support	obligation	arising	out	of	the	parental	relationship	status	as	a	       creditor;	or	(B)	the	debtor	received	less	than	reasonably	equivalent	value	
domestic	support	obligation.81	                                                in	exchange	for	the	transfer,	and	the	debtor	was	or	became	insolvent	at	
	 Finally,	the	debt	must	not	be	assigned	to	a	nongovernmental	entity,	         the	time	of	the	transfer.92	The	bankruptcy	court	has	the	power	to	review	
unless	the	obligee	voluntarily	assigned	it	in	order	to	collect	the	debt.82     divorce	decrees	and	settlements	to	determine	whether	they	are	avoidable	
                                                                               as	fraudulent	transfers.93	
	 Dischargeability	Complaints	                                                 	 In Sorlucco,	the	Bankruptcy	Court	for	the	District	of	New	Hampshire	
                                                                               focused	on	the	“reasonably	equivalent	value”	portion	of	the	fraudulent	
	 A	determination	of	whether	a	particular	debt	is	or	is	not	discharge-         transfer	test.	The	court	indicated	that	it	would	review	divorce	settlement	
able	must	be	affirmatively	sought	from	the	bankruptcy	court.	A	discharge-      agreements	by	making	a	“surface	determination”	that	the	division	of	
ability	complaint	under	either	Section	523(a)(5)	or	Section	523(a)(15)	        marital	property	between	the	divorcing	parties	was	within	the	range	of	
may	be	filed	at	anytime	during	the	pending	bankruptcy	case.83	Either	the	      likely	distribution	that	would	be	ordered	by	the	state	divorce	court	if	the	
creditor	or	the	debtor	may	file	a	dischargeability	complaint.84	However,	      property	division	had	actually	been	litigated	in	that	state	court.94	
the	party	seeking	to	have	the	debt	determined	nondischargeable	generally	      	 The	Bankruptcy	Court	will	not	review	the	divorce	settlement	de
bears	the	burden	of	proving	by	a	preponderance	of	the	evidence	each	           novo.	As	long	as	the	property	division	was	the	result	of	arms-length	
element	of	the	dischargeability	exception.85                                   bargaining	and	within	the	likely	range	of	outcomes	should	the	matter	
	 Federal	bankruptcy	courts	and	state	courts	have	concurrent	jurisdic-         have	gone	to	trial,	the	Bankruptcy	Court	will	not	disturb	the	settlement.	
tion	to	make	dischargeability	determinations	under	sections	523(a)(5)	         In	considering	whether	or	not	the	property	settlement	is	within	the	likely	
and	523(a)(15)	with	respect	to	domestic	relations	debts.86	Because	            range	of	litigated	outcomes,	the	Bankruptcy	Court	will	consider	factors	
federal	law	controls,	however,	characterization	of	a	debt	as	support	          that	would	lead	a	divorce	court	to	award	an	unequal	division	of	prop-
by	a	state	court	prior	to	a	bankruptcy	filing	will	not	be	binding	on	the	      erty.	95	Settlements	on	the	eve	of	bankruptcy	filing	will be more closely
bankruptcy	court.	Nevertheless,	the	bankruptcy	court	may	certainly	give	       scrutinized for potential fraud.96

   Fall 2009                                                 New Hampshire Bar Journal                                                       	      	 25		   
    	 Another	type	of	avoidable	pre-bankruptcy	transfer	is	a	preferential	           the	divorce	proceedings,	and	the	possible	impact	of	the	bankruptcy	on	
    transfer	under	11	U.S.C.	§	547.	A	preferential	transfer	or	“preference”	         marital	assets.	
    is	a	transfer	by	an	insolvent	individual	to	a	creditor	shortly	before	the	       	 If	the	parties	anticipate	post-divorce	bankruptcy	filings,	the	Per-
    individual	files	bankruptcy,	which	results	in	the	creditor	receiving	greater	    manent	Stipulations	should	reference	such	intentions,	and	divorce	
    payment	on	the	creditor’s	claim	than	if	the	transfer	had	not	been	made	          counsel	should	be	cognizant	of	the	fraudulent	transfer	provisions	of	the	
    and	the	creditor	had	only	been	paid	as	part	of	the	bankruptcy.97	The	            Bankruptcy	Code.	The	following	language	is	suggested	as	a	starting	point	
    bankruptcy	trustee	has	the	authority	to	avoid	such	transfers	and	to	require	     if	the	parties	intend	to	file	separate	bankruptcy	cases	after	the	divorce	
    the	creditor	to	disgorge	the	transferred	property	or	payment	so	that	it	         becomes	final:	
    may	be	included	in	the	bankruptcy	estate.98	However,	the	trustee	may	not	            The	parties	intend	to	seek	a	discharge	of	their	debts	under	the	Bank-
    avoid	preferential	transfers	that	were	payments	on	a	domestic	support	               ruptcy	Code	after	the	entry	of	the	final	divorce	decree.	Therefore,	neither	
    obligation.99	On	the	other	hand,	payments	made	on	other	post-divorce	                party	is	ordered	to	pay	the	debts	of	the	other	party.	Neither	party	shall	be	
    domestic	relations	debts	may	be	avoidable	as	preferential	transfers.100	             obligated	to	pay	any	joint	debts.	Neither	party	is	entitled	to	defense	or	
    	 Section	522	allows	the	trustee	or	the	debtor	to	avoid	pre-petition	                indemnification	by	the	other	party	for	any	debts.	The	parties	specifically	
    judicial	liens	that	impair	the	debtor’s	exemptions.101	However,	judicial	            agree	that	this	provision	shall	govern	in	the	event	that	one	or	both	
    liens	that	secure	domestic	support	obligations	are	excepted	from	this	               parties	do	not	seek	or	do	not	receive	a	discharge	of	his	or	her	debts	and	
    provision.102	Finally,	Section	549	allows	the	trustee	to	avoid	transfers	            accept	the	risk	of	such	an	event.	The	parties	further	accept	that	one	or	
    made	without	proper	authority	during	a	pending	bankruptcy.103	                       both	of	the	parties	may	choose	to	not	file	a	bankruptcy	case	or	may	not	
                                                                                         receive	a	bankruptcy	discharge	in	reaching	the	agreement	regarding	
    prActIcAl SolutIonS                                                                  the	award	of	alimony	or	child	support	(or	lack	of	such	award).	
    	 Bankruptcy	as	a	Solution	to	Marital	Debt	
                                                                                     	 EXCEPT:	Jane	Doe	shall	remain	liable	for	the	payment	of	the	mort-
    	 In	cases	where	divorcing	parties	have	significant	joint	debt	(possibly	        gage	of	the	parties’	former	marital	residence,	ownership	of	which	she	is	
    including	a	mortgage	on	a	home	with	little	or	no	equity),	one	solution	          being	awarded.	Jane	Doe	shall	defend	and	indemnify	John	Doe	for	any	
    may	be	for	one	or	both	parties	to	consider	filing	a	bankruptcy	case	to	          claim	brought	by	the	mortgage	holder	against	John	Doe.	
    discharge	their	debts.	This	solution	may	allow	the	parties	to	resolve	one	
    of	the	significant	issues	in	the	divorce	case	without	the	need	for	litiga-
    tion.	A	routine	chapter	7	bankruptcy	case	frequently	involves	legal	fees	        	 Bankruptcy	as	a	Risk	to	Divorce	Litigants	
    between	$1,000	and	$2,000	and	court	filing	fees	of	$299.	This	is	likely	         	 If	one	of	the	parties	is	concerned	that	the	other	party	may	seek	a	
    less	expensive	than	the	cost	of	litigating	the	division	of	debts	and	will	       bankruptcy	discharge	of	joint	debts,	then	there	are	a	number	of	precau-
    leave	neither	party	at	risk	that	the	other	party	will	default	on	his	or	her	     tions	that	may	be	taken	to	mitigate	this	risk.	
    obligations	under	the	divorce	decree.	                                           	 Allocation	of	joint	debts/assets.	The	most	effective	(but	often	not	
    	 If	the	divorce	is	not	final,	the	parties	have	the	option	of	filing	a	joint	    feasible)	solution	is	to	structure	the	divorce	settlement	so	that	the	other	
    chapter	7	bankruptcy	case	or	individual	bankruptcy	cases.104	Once	the	           party	is	not	obligated	to	pay	any	joint	debts.		Counsel	may	want	to	have	
    divorce	is	final,	the	parties	must	file	individual	bankruptcy	cases.105	The	     his	or	her	client	assume	the	joint	debts	in	exchange	for	a	disproportionate	
    primary	advantage	to	filing	a	joint	bankruptcy	case,	rather	than	two	            share	of	the	assets.	Similarly,	counsel	may	also	attempt	to	negotiate	a	
    individual	bankruptcy	cases,	is	reduced	legal	fees	for	the	bankruptcy	           resolution	that	calls	for	the	sale	of	certain	assets	and	the	payoff	of	joint	
    case.	Normally,	the	legal	fees	for	a	joint	bankruptcy	case	are	the	same	         debts	from	the	proceeds.	108	
    as	an	individual	bankruptcy	case,	so	a	joint	filing	will	save	the	couple	        	 Characterization	of	debts.	Another	possibility	is	to	structure	the	
    half	the	legal	fees.	                                                            obligation	as	a	domestic	support	obligation.109	As	discussed	above,	in	
    	 However,	a	joint	bankruptcy	case	for	separated	parties	should	only	            a	chapter	7	case,	all	divorce-related	debts	are	excluded	from	a	debtor’s	
    be	done	in	cases	where	the	parties	are	able	to	fully	cooperate	towards	          bankruptcy	discharge.	However,	in	a	chapter	13	case,	the	bankruptcy	
    the	mutual	goal	of	discharging	their	debts.	Bankruptcy	counsel	con-              discharge	will	discharge	divorce-related	debts	except	those	that	qualify	as	
    templating	representing	a	couple	undergoing	a	divorce	would	be	well	             a	domestic	support	obligation.	Thus,	counsel	may	seek	to	characterize	the	
    advised	to	consider	his	or	her	obligations	to	the	joint	clients	and	the	         obligation	to	his	or	her	client	as	a	domestic	support	obligation.	However,	
    risks	of	a	potential	or	actual	conflict	of	interest.106	Even	when	the	risk	of	   in	doing	so,	counsel	must	remember	that	the	bankruptcy	court	will	look	
    a	conflict	of	interest	arising	in	the	future	is	low,	counsel	should	disclose	    beyond	the	labels	assigned	by	the	parties	or	the	state	court.	Thus,	in	order	
    to	joint	clients	the	risks	and	the	consequences	should	a	conflict	arise.	        for	the	bankruptcy	court	to	treat	the	debt	as	a	non-dischargeable	domestic	
    The	clients	should	sign	waivers	asserting	that	they	are	unaware	of	any	          support	obligation,	it	will	need	to	serve	the	purpose	of	support.	Beyond	
    existing	conflict	of	interest	and	understand	the	consequences	of	a	conflict	     the	stated	intent	of	the	parties,	indicia	of	support	such	as	tax	treatment,	
    of	interest	arising	in	the	future.	In	addition,	each	party	should	have	their	    survival	of	death/remarriage,	payment	structure,	etc.	may	help	prove	
    own	divorce	attorneys	review	the	conflict	waiver.107	                            that	the	parties	intended	the	payment	to	be	a	support	obligation,	rather	
    	 If	one	or	both	parties	decide	to	file	bankruptcy	prior	to	the	final	           than	property	division.	
    divorce	decree,	divorce	counsel	should	be	aware	of	the	automatic	stay,	          	 Counsel	would	be	wise	to	include	hold-harmless	language	where	
    the	potential	need	for	relief	from	the	bankruptcy	court	to	continue	with	        any	joint	debt	is	assumed	by	the	other	party.	This	will	ensure	that	the	

	      	 26		                                                    New Hampshire Bar Journal                                                          Fall 2009
obligation	will	satisfy	the	“recoverable	by”	former	spouse	prong	of	the	         	 Where	the	former	spouse	has	already	filed	bankruptcy,	the	options	
DSO	test.110	                                                                    available	are	limited.	The	former	spouse’s	bankruptcy	pleadings	should	
	 Security	interests.	Another	way	to	protect	a	client	against	the	risk	          be	reviewed	carefully	to	determine	the	proposed	treatment	of	divorce-
of	a	former	spouse	filing	bankruptcy	is	through	the	use	of	a	security	           related	debts.		It	may	be	appropriate	to	pursue	collection	in	state	court,	
interest.	If	the	other	party	will	be	awarded	an	asset	of	significant	value,	     but	the	scope	and	impact	of	the	automatic	stay	must	be	kept	in	mind.	The	
the	obligation	to	the	client	can	be	secured	by	that	asset	as	collateral.	        safest	route	before	attempting	to	pursue	an	obligation	owed	by	a	debtor	
Secured	claims	generally	survive	the	bankruptcy	discharge	at	least	in	           ex-spouse	is	to	seek	relief	from	the	automatic	stay	in	the	bankruptcy	court.	
regards	to	the in rem rights	of	the	secured	claim.111	In	other	words,	while	     Counsel	may	wish	to	oppose	a	proposed	chapter	13	plan	on	the	basis	that	
a	bankruptcy	can	discharge	the	personal	liability	to	pay	the	secured	debt,	      it	was	filed	in	bad	faith.	Alternatively,	counsel	may	file	a	dischargeability	
the	right	of	a	secured	creditor	to	proceed	against	the	collateral	survives	      complaint	seeking	to	have	the	client’s	claim	determined	to	be	a	domestic	
the	bankruptcy	discharge.	                                                       support	obligation,	and	hence	excluded	from	the	debtor’s	discharge.115
	 The	security	interest	should	be	properly	perfected	or	it	will	be	subject	
to	avoidance	by	the	bankruptcy	trustee.112	Counsel	will	need	to	balance	         concluSIon
the	cost	to	the	client	of	taking	such	protective	steps	against	the	risk	of	      	 The	recent	economic	downturn	and	decline	in	the	real	estate	mar-
the	opposing	party	seeking	a	bankruptcy	discharge.	                              ket	brings	new	challenges	to	those	who	represent	clients	in	family	law	
	 Conditions	precedent.	A	final	way	to	protect	a	client	from	discharge	          matters.	Family	law	attorneys	will	need	to	be	familiar	with	the	potential	
of	joint	debt	by	a	former	spouse	is	to	make	payment	of	such	debt	a	condi-        solutions	available	to	clients	under	the	Bankruptcy	Code,	as	well	as	the	
tion	precedent	to	award	of	marital	assets.113	For	example,	if	one	spouse	        potential	pitfalls.	In	appropriate	cases,	a	chapter	7	bankruptcy	filing	
will	be	awarded	the	marital	home	and	is	responsible	for	payment	of	a	            by	one	or	both	of	the	parties	may	resolve	some	or	all	of	the	issues	in	
joint	mortgage,	the	divorce	stipulation	may	provide	that	the	marital	            a	divorce	case.	When	negotiating	a	settlement	of	the	divorce	case	or	
home	is	awarded	to	both	parties	until	the	spouse	in	possession	pays	off	         submitting	a	proposed	order	to	the	Court,	counsel	should	also	be	aware	
or	refinances	the	mortgage.	However,	a	condition	precedent	must	be	              of	the	possibility	of	a	bankruptcy	filing	by	the	other	party,	and	the	effect	
clearly	intended	by	the	language	used	in	order	for	the	court	to	construe	        such	a	filing	may	have	on	the	client.	
it	as	such.114                                                                   	 Post-divorce,	the	Bankruptcy	Code	still	offers	relief	to	debtors	who	
                                                                                 are	unable	to	pay	certain	divorce	related	obligations,	particularly	through	
	 Bankruptcy	as	a	Post-Divorce	Solution	(or	Problem)	                            a	chapter	13	bankruptcy	filing.	If	the	debtor	owes	non-domestic	support	
	 Often	the	intersection	of	divorce	and	bankruptcy	presents	to	either	           obligation	debts,	a	chapter	13	bankruptcy	may	allow	the	debtor	to	obtain	
the	family	law	attorney	or	the	bankruptcy	attorney	after	the	divorce	has	        relief	from	those	debts.	Counsel	representing	the	creditor	spouse	will	
been	finalized.	A	client	may	come	seeking	relief	from	significant	divorce-       need	to	be	aware	of	the	limitations	imposed	by	the	automatic	stay	and	
related	debts	that	the	client	is	no	longer	able	to	pay.	Perhaps	the	client	      the	scope	of	the	discharge	available	to	the	debtor	under	chapter	7	and	
agreed	to	keep	the	marital	home	and	pay	the	mortgage	because	a	sale	             chapter	13	of	the	Bankruptcy	Code.	
was	anticipated	that	is	no	longer	feasible	as	a	result	of	the	declining	real	
estate	market.	Perhaps	the	client	has	recently	become	unemployed	and	            endnoteS
can	no	longer	pay	the	joint	debts	awarded	to	the	client	in	the	divorce	          1      In June 2009, 346 Chapter 7 cases were filed in the District of New Hampshire. Of these,
decree.	                                                                         only 43 had non-exempt assets available for liquidation and distribution to pay unsecured creditors.
                                                                                 See NH Bankruptcy June Totals, located at http://www.nhb.uscourts.gov/Public_Notices/statistics.
	 Bankruptcy	may	or	may	not	be	a	solution	for	such	a	client.	If	the	             html.
divorce	attorney	is	unable	to	provide	any	family	law	solutions,	referral	to	a	   2       The means test is a two part test. The first part of the test determines whether the debtor’s
bankruptcy	attorney	may	be	appropriate.	Where	there	are	divorce-related	         annualized Current Monthly Income (CMI) for the debtor’s household size is above or below the
debts,	counsel	should	be	aware	of	the	differences	between	the	scope	of	the	      median household income for the debtor’s household size for the state the debtor resides in.
                                                                                 If the debtor’s annualized CMI is less than the state median household income for the debtor’s
chapter	7	discharge	and	the	chapter	13	discharge.	As	discussed	above,	           household size, the debtor passes the means test and his or her case is presumed to not be
if	the	debtor	is	attempting	to	discharge	divorce	related	obligations,	a	         an abuse of the bankruptcy code. If the debtor’s annualized CMI is higher than the median
chapter	13	case	is	the	debtor’s	only	option.	If	those	obligations	may	be	        household income for the debtor’s household size, the debtor must complete the second part
                                                                                 of the Means Test, the “long form,” to determine his or her ability to pay creditors. This long
considered	domestic	support	obligations	under	the	Bankruptcy	Code,	              form allows the debtor to deduct certain expenses from the debtor’s CMI to determine whether
bankruptcy	may	not	be	the	right	solution.	                                       the debtor has a meaningful ability to pay his or her creditors. If so, the debtor fails the means
                                                                                 test and is presumptively not eligible to file a chapter 7 bankruptcy case.
	 Counsel	may	also	be	presented	with	the	client	whose	former	spouse	
                                                                                 3     11 U.S.C. §§ 1322, 1325.
is	failing	to	pay	his	or	her	divorce-related	obligations	and	threatening	to	
                                                                                 4     11 U.S.C. §101(10A). Social security benefits and certain unusual forms of income are
file	bankruptcy	or	has	already	filed	bankruptcy.		Often	the	divorce	stipu-       excluded from income for purposes of the Means Test.
lation	or	decree	has	not	been	drafted	with	the	expectation	of	a	possible	        5     11 U.S.C. § 1322(d).
future	bankruptcy	filing	by	one	of	the	parties.	Where	the	former	spouse	         6     See Official Bankruptcy Forms B22A, B22C.
is	in	a	precarious	financial	position,	a	contempt	action	may	push	him	           7     11 U.S.C. § 707(b)(7)(B).
or	her	into	filing	bankruptcy.	If	a	bankruptcy	filing	appears	imminent,	         8     11 U.S.C § 707(b). Note however, that voluntary support payments cannot be deducted
post-divorce	counsel	may	better	protect	his	or	her	client	by	seeking	a	          on the Means Test.
stipulation	that	adopts	some	of	the	precautions	discussed	above.	                9     11 U.S.C. §§ 1321 and 1322.


   Fall 2009                                                  New Hampshire Bar Journal                                                                             	      	 27		   
    10      11 U.S.C. §§ 1322(b)(3) and (5).                                                              58    11 U.S.C. § 507(a)(1).
    11      In re Beeman, 235 B.R. 519 (Bankr. D.N.H. 1999).                                              59    11 U.S.C. § 507(a)(1)(B).
    12      See In re Carol Center, 282 B.R. 561 (Bankr. D.N.H. 2002).                                    60    11 U.S.C. §§ 507(a)(1) and 1322(a)(2).
    13      11 U.S.C. § 524(a).                                                                           61    11 U.S.C. § 1322(a)(4); In re Williams, 387 B.R. 211 (Bankr. N.D. Ill. 2008).
    14      See 11 U.S.C. § 522(c)(2).                                                                    62    11 U.S.C. § 1325(a)(8).
    15      See 11 U.S.C. § 524(e).                                                                       63    11 U.S.C. § 1307(c)(11).
    16      11 U.S.C. § 362(a).                                                                           64    11 U.S.C. § 1328(a).
    17      11 U.S.C. § 362(a).                                                                           65 11 U.S.C. § 101(14A). Prior to BABCPA, the term “domestic support obligation” did not
    18      11 U.S.C. § 362(a).                                                                           exist in the Bankruptcy Code. Rather, Section 523(a)(5) simply excepted from discharge debts
                                                                                                          owed “to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or
    19      11 U.S.C. § 362(c)(2).                                                                        support of such spouse or child, in connection with a separation agreement, divorce decree
    20      11 U.S.C. § 362(c)(1).                                                                        or other order of a court of record” as long as the debt was actually in the nature of alimony,
    21      11 U.S.C. § 554.                                                                              maintenance or support. 11 U.S.C. § 523(a)(5) (2004). It is believed that the adoption of the
                                                                                                          term “domestic support obligation” was not intended to alter the exception and that most pre-
    22      11 U.S.C. § 362(b)(2)(A)(i).                                                                  BABCPA caselaw remains applicable.
    23      11 U.S.C. § 362(b)(2)(A)(ii).                                                                 66    11 U.S.C. § 101(14A)(A).
    24      11 U.S.C. § 362(b)(2)(A)(iii).                                                                67    11 U.S.C. § 101(14A)(A).
    25      11 U.S.C. § 362(b)(2)(A)(v).                                                                  68    In re Watson, 402 B.R. 294, 299 (Bankr. N.D. Ind. 2009).
    26      11 U.S.C. § 362(b)(2)(A)(iv).                                                                 69 See e.g., In re Poole, 383 B.R. 308, 313 (Bankr. D.S.C. 2007); In re Johnson 2008 WL
    27 The term “domestic support obligation,” which is statutorily defined, is discussed further         553221 (Bankr. M.D. N.C. 2008).
    below.                                                                                                70    11 U.S.C. § 101(14A)(A).
    28      11 U.S.C. § 362(b)(2)(B).                                                                     71    11 U.S.C. § 101(14A)(B).
    29      See 11 U.S.C. § 541(a); In re Pidgeon, 155 B.R. 24, 26 (Bankr. D.N.H. 1993).                  72 In re Werthen, 329 F.3d at 273; Baroody v. Baroody (In re Baroody), 2007 BNH 009
    30      See 11 U.S.C. § 1306(a); In re Pidgeon, 155 B.R. 24, 26 (Bankr. D.N.H. 1993).                 (unreported).
    31      11 U.S.C. § 362(b)(2)(B)-(G).                                                                 73 In re Werthen, 329 F.3d at 273. See also In re Smith, 398 B.R. 715, 721 (B.A.P. 1st Cir.
    32      11 U.S.C. § 362(d).                                                                           2008).
    33      11 U.S.C. § 362(d)(1).                                                                        74 See In re Werthen, 329 F.3d 269, 272-3 (1 Cir. 2003); Peterson v. Peterson (In re
                                                                                                          Peterson), 292 B.R. 228, 231 (Bankr. D.N.H. 2003).
    34      See In re Pidgeon, 155 B.R. 24, 26 (Bankr. D.N.H. 1993).
                                                                                                          75    In re Werthen, 329 F.3d at 273.
    35 See e.g., In re Pidgeon, 155 B.R. 24 (Bankr. D.N.H. 1993) (granting relief to allow non-
    debtor spouse to proceed with pending state court divorce action).                                    76    See In re Smith at 272.
    36      In re Pidgeon, 155 B.R. 24, 26-27 (Bankr. D.N.H. 1993).                                       77    In re Baroody, 2007 BNH 009, at 5-6.
    37      In re Pidgeon, 155 B.R. 24, 27 (Bankr. D.N.H. 1993).                                          78    See Hale, 289 B.R. at 791; In re Savoy, 2006 BNH 028, at 5.
    38 The filing fee for a motion for relief is currently $150.00, and may be waived for child           79    11 U.S.C. § 101(14A)(C).
    support creditors.                                                                                    80    See In re Shine, 802 F.2d 583 (1 Cir. 1986).
    39      See LBR 4001-1 and LBR 7102.                                                                  81 See e.g., Cain v. Isenhower (In re Cain), 29 B.R. 591 (Bankr.N.D.Ind.1983); Mullally v.
    40      See LBR 4001-1(e).                                                                            Carter, 67 B.R. 535 (N.D.Ill.1986).
    41      11 U.S.C. § 362(e).                                                                           82    11 U.S.C. § 101(14A)(D).
    42      11 U.S.C. § 362(e).                                                                           83    See Fed. R. Bankr. P. 4007(b).
    43      11 U.S.C. § 362(e).                                                                           84    Fed. R. Bankr. P. 4007(a).
    44      See In re Soares, 107 F.3d 969, 976 (1 Cir. 1997).                                            85 In re Richmond, 351 B.R. 6, 10 (Bankr. D. N.H. 2006); Savoy v. Savoy (In re Savoy)
                                                                                                          , 2006 BNH 028 (unreported); Putney v. Putney (In re Putney), 2004 BNH 019 (unreported)
    45      11 U.S.C. § 362(k)(1).
                                                                                                          (finding that creditor-spouse failed to satisfy burden of proof to establish nondischargeability
    46 Putnam v. Rymes Heating Oils, Inc. (In re Putnam) , 167 B.R. 737, 740 (Bankr. D.N.H.               of marital debt, where language of divorce decree clearly labeled debt as property settlement
    1994).                                                                                                and creditor-spouse presented no contradictory evidence or testimony).
    47 In re Schafer, 315 B.R. 765, 774-775 (Bankr. D. Colo. 2008). But see, 11 U.S.C. § 362(k)(2)        86    See 11 U.S.C. § 523(c).
    (limiting damages to actual damages if certain stay violations are based on actions taken in good
                                                                                                          87 In re Monsour, 372 B.R. 272, 278 (Bankr. W.D. Va. 2007) (holding debtor could not
    faith belief that a debtor has not timely filed, and acted upon, a statement of intention regarding
                                                                                                          relitigate issue of dischargeability under 523(a)(5) where state court had already held the debt
    personal property).
                                                                                                          nondischargeable in post-bankruptcy proceedings).
    48 In re Carrigg, 216 B.R. 303 (1st Cir.BAP 1998) (sanctioning creditor for failing to return
                                                                                                          88 See Macy v. Macy, 114 F.3d 1 (1 Cir. 1997); In re Peterson, 292 B.R. 228 (Bankr. D.
    truck repossessed after the bankruptcy filing, but without knowledge of the bankruptcy filing.)
                                                                                                          N.H. 2003).
    49      11 U.S.C. § 523.
                                                                                                          89 See In re Soforenko, 203 B.R. 853, 862 (Bankr. D. Mass. 1999); In re Baroody, 2007
    50      11 U.S.C. §523(a)(8).                                                                         BNH 009 (finding that attorneys fee award in divorce stipulation was nondischargeable as a
    51      In re Shine, 802 F.2d 583, 585 (1 Cir. 1986) (internal citation omitted).                     debt in the nature of alimony, maintenance or support because the purpose of the award was
                                                                                                          to allow the creditor-spouse to refinance the mortgage and ease the burden of maintaining the
    52 In re Shine, 802 F.2d 583, 585-586 (1 Cir. 1986); In re Werthern, 329 F.3d 269, 272 (1
                                                                                                          marital residence and supporting the minor child).
    Cir. 2003).
                                                                                                          90 See e.g., In re Joseph , 16 F.3d 86 (5 Cir. 1994). But see, In re Savoy, 2006 BNH 028
    53      See 11 U.S.C. § 101(14A).
                                                                                                          (finding that attorneys fees did not fall within the exception to discharge for debts in the nature
    54      11 U.S.C. § 523(a)(5).                                                                        of alimony, maintenance or support where separate provisions were clearly made for alimony
    55      11 U.S.C. § 523(a)(15).                                                                       and child support and parties had negotiated payment of attorneys fees after all other provisions
                                                                                                          of divorce decree were settled).
    56      Compare 11 U.S.C. §523(a) with §1328(a).
                                                                                                          91    See In re Sorlucco 68 B.R. 748, 753 (Bankr. D.N.H. 1986).
    57      11 U.S.C. §1328(a)(2).



	       	 28		                                                                        New Hampshire Bar Journal                                                                         Fall 2009
92    11 U.S.C. §548(a)(1).                                                                     each party had divorce counsel. The author is aware that there are bankruptcy attorneys who
93    See In re Sorlucco 68 B.R. 748, 753 (Bankr. D.N.H. 1986).                                 believe that one should never file a joint bankruptcy case for a couple undergoing a divorce
                                                                                                under any circumstances. Bankruptcy counsel should also explicitly delineate the scope of his
94    See In re Sorlucco 68 B.R. 748, 753 (Bankr. D.N.H. 1986).                                 or her representation in writing (either in the fee agreement or in a separate document signed
95    In re Riso, 102 B.R. 280 (Bankr. D.N.H. 1989).                                            by the clients).
96    In re Sorlucco 68 B.R. 748 (Bankr. D.N.H. 1986).                                          108 Note, however, that the New Hampshire Supreme Court has held that the trial court lacks
97    11 U.S.C. § 547(b).                                                                       the authority to order a sale of the parties’ marital assets to pay marital debts. In re Beal, 153
                                                                                                N.H. 349, 350-351 (2006).
98    11 U.S.C. § 547(b).
                                                                                                109 Protection against discharge in the event of possible bankruptcy must be weighed against
99    11 U.S.C. § 547(c)(7).                                                                    the negative consequences of characterization as support, such as potential for subsequent
100 But see, In re Skorich, 337 B.R. 441 (Bankr. D.N.H. 2006) (holding that transfer of funds   modification and taxable income.
into escrow during pending divorce was not an avoidable preference because debtor’s spouse      110 11 U.S.C. § 101(14A)(A).
did not become a creditor until final divorce decree was entered).
                                                                                                111 11 U.S.C. § 522(c)(2).
101 11 U.S.C. § 522(f).
                                                                                                112 See 11 U.S.C. § 541.
102 11 U.S.C. § 522(f).
                                                                                                113 See e.g., Sommers v. Sommers, 143 N.H. 686 (1999).
103 11 U.S.C. § 549.
                                                                                                114 See Sommers v. Sommers, 143 N.H. 686, 692 (1999) (holding that language in divorce
 104 A joint chapter 13 case would not be advisable for divorcing parties, as this is a long    stipulation awarding vehicle to husband, but providing that title would transfer only upon payment
term bankruptcy (three to five years).                                                          of marital debts created a security interest rather
105 Only married couples may file a joint bankruptcy case.11 U.S.C. §302.                       than a condition precedent).
106 N.H. Rule of Professional Conduct 1.7.                                                      115 See e.g., In re Smith, 398 B.R. 715, 721 (B.A.P. 1st Cir., 2008).
107 These authors would never represent a divorcing couple in a bankruptcy case unless


                                                                             Authors
                                                                             Mark P. Cornell is a partner
                                                                             in the law firm of Cornell and
                                                                             Ovitt Puc PLLC in Concord.

                                                                             Kelly Ovitt Puc is a partner
                                                                             in the law firm of Cornell and
                                                                             Ovitt Puc PLLC in Concord.
                                                 Mark P. Cornell                                                    Kelly Ovitt Puc



                                     4 Reasons to Take a DOVE Case
           “DOVE provides the opportunity for                                                    “One reason many of us went to law
           me to provide short-term service to the                                               school was the prospect of representing
           victims of domestic violence at a time                                                the downtrodden and abused.        at is
           when they need help and support the                                                   exactly what the DOVE cases involve.
           most.”                                                                                I find it very rewarding to spend some
                              Attorney Kysa Crusco                                               time helping someone who has been
                                                                                                 abused and has no real chance without
                                                                                                 our help.”
                                                                                                               Attorney Jack B. Middleton

                                   “As lawyers, we have a unique                                                            “A lawyer is often the domestic violence
                                   opportunity to help vulnerable people.                                                   victim’s last best hope for protection.”
                                   DOVE is a great program that enables                                                                        Attorney Donald F. Hebert
                                   lawyers to advocate for survivors
                                   and have an immediate and positive
                                   impact.”
                                                 Attorney David L. Nixon




                               For more information contact Pam Dodge, DOVE Project, 2 Pillsbury Street, Suite 300, Concord, NH 03301
                                                 or call Pam Dodge @224-6942 Ext. 3230 or email pdodge@nhbar.org



     Fall 2009                                                             New Hampshire Bar Journal                                                                             	      	 29		   

								
To top