I have previously written about several different situations involving interaction between New York’s Family Law and bankruptcy. The basics of divorce and bankruptcy were addressed in this post, the issues related to the bankruptcy court’s handling of domestic support obligations were addressed in this post, and the issues related to attorneys fees and bankruptcy were addressed in this post. Because of the complexity of the issues involved, New York courts continue to decide cases where the family law and bankruptcy law interact. A recent case of Marcia T. v. Raymond W., 24 Misc.3d 1245(A) (Fam. Ct. Monroe Co. 2009), addressed whether Chapter 13 bankruptcy stay prevented recovery of child support arrears and a finding of willful failure to pay.
Respondent father filed for Chapter 13 Bankruptcy relief in November 2008. Petitioner mother brought a willful violation petition based upon the father’s failure to pay several thousand dollars in child support arrears. Support Magistrate determined that respondent willfully failed to pay $7,814.90 in child support arrears, and referred matter to Family Court for confirmation in accordance with Family Court Act § 439(a). Respondent’s lawyer argued that because of the Chapter 13 filing, the confirmation hearing must have stayed since automatic stay prevents recovery of any claims that arose prior to the commencement of the bankruptcy case.
The Family Court held that respondent’s commencement of Chapter 13 bankruptcy and resulting automatic stay stops all actions and proceedings to collect pre-petition claims against the debtor and his property. Because payments to creditors must come from the debtor’s post-petition earnings, those earning are property of the Chapter 13 estate, pursuant to 11 U.S.C. §1306 (a)(2). Thus, the claimant seeking to collect arrearages in support obligations is not free to pursue the Chapter 13 debtor’s post-petition earnings. It further held that although Family Court is precluded from exercising its enforcement powers pursuant to FCA §454 to recover arrears while Chapter 13 bankruptcy plan is in effect, Family Court found that it is not prohibited to confirm finding of willful violation already made by Support Magistrate and hold enforcement in abeyance pending completion of the Chapter 13 bankruptcy plan.
The court further noted that petitioner has filed a claim in the bankruptcy proceeding for the support arrears and that such arrears will be payable under the bankruptcy plan. If the payment of arrears is not satisfied when the Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers to compel the payment of arrears.
The above is an excellent illustration of how a Chapter 13 bankruptcy can be utilized to prevent serious problems that a finding of willful violation may present. Further, since the typical Chapter 13 plan lasts for 5 years, this allows the party paying child support to extend payment of child support arrears over 5 years. A family law lawyer needs to be familiar with bankruptcy law issues since it is not uncommon for these areas of law to interplay.