Here, in a nutshell, are bankruptcy basics for family lawyers.
This isn’t everything you need to know to navigate a dissolution where one spouse files bankruptcy, or when marital debts suggest both spouses should file. It’s a start to a complex issue.
You can get the basic introduction to concepts and terms operative in bankruptcy here. For a look at the broader legal themes at play when family law and bankruptcy collide, see this post.
Bankruptcy terms and concepts
Filing Spouses can file alone; only spouses may file together.
Bankruptcy paperwork must list all debts, dischargeable or not, even if disputed
Chapter 7 is a liquidation proceeding where trustee may sell non exempt property, recover preferences, and avoid fraudulent transfers. However, the vast majority of cases are no-asset cases.
Chapter 13 pays debts, in whole or in part, from future income while the debtor keeps his assets.
Assets All community property comes into bankruptcy estate, even if only one spouse files. If property has been finally divided in dissolution, only debtor’s share of former community property is included.
Debts All debts must be listed, whether dischargeable or not, delinquent or not, liquidated or not, disputed or not.
Creditors must file proof of claim to be paid through the case; claim can assert amounts different from the listing on the bankruptcy schedules.
Duration Chapter 7, from filing to discharge, generally runs 4-6 months. Chapter 13 plans cover 3-5 years, with discharge entered after last payment.
Discharge No debts to spouse or kids arising in a dissolution are discharged in Chapter 7. Chapter 13 can discharge equalizing payments and hold harmless clauses
Liens Liens on assets generally survive bankruptcy. Chapter 13 can cut some liens down to the value of the collateral.
Judicial liens impairing exemptions can be eliminated.
Equalizing payments secured by a lien generally can’t be altered.
Stay Bankruptcy filing enjoins collection of debts existing at filing. Actions to dissolve married status or establish support or paternity are not stayed.
Exemptions Filer can elect one of two California exemption schemes to select property to keep. Exempt property may be divided by family court between spouses.
Support Support is not dischargeable in bankruptcy. Bankruptcy law controls whether obligation is support for bankruptcy purposes
Attorneys fees Fees awarded to the other spouse as support are not dischargeable. Fees the debtor owes his own attorney can be discharged.
Priority for payment Support is paid first and in full to the extent of available assets in Chapter 7; support must be paid in full in Chapter 13.
Trustees Chapter 7 trustee administers assets with non exempt equity. Chapter 13 trustee is disbursing agent for plan payments made by debtor