American Bar Association

1 American Bar Association Section of family Law 2014 Spring CLE Conference Game, Set, Match: The Ex-Spouse Nearly Always Wins When bankruptcy and Divorce Collide What Can Be Done? Friday, May 9, 2014 Speakers: Helen Casale, Esq. Jennie Riemer, Esq. Shayna Steinfeld, Esq. Game, Set, Match: the Ex-spouse Nearly Always Wins WhenBankruptcy and Divorce Collide -- What Can Be Done?1 Shayna M. Steinfeld, , & Steinfeld, PC, Atlanta, GA 30345 : bankruptcy is Federal Law. The bankruptcy Code is found under Title 11 of the Code and all Sections referred to inthis paper and in the presentation refer to 11 unless otherwise noted. The Constitution specifically allows for a right to bankruptcy relief.

2 Principles of Federalism require federal law to take priority over state law and, therefore, thecollision between divorce and bankruptcy becomes OF DIVORCE DEBT CHANGES OVER TIME1 These materials are much more thoroughly treated in The family Lawyer s Guide toBankruptcy by Shayna and Bruce Steinfeld, which may be purchased through the ABA FamilyLaw Section. The 3rd Edition of the Book will be released in M. Steinfeld, Board Certified by the American Board of Certificationin Consumer and Business bankruptcy Law, a shareholder of Steinfeld & Steinfeld, PC, practiceswith her husband, Bruce, a Fellow of the AAML. She has lead the Atlanta Bar Association , theGeorgia Association for Women Lawyers, the Sole Practitioner/Small Firm Section of theAtlanta Bar and bankruptcy Sections of the Atlanta Bar and the State Bar of Georgia; she is pastchair of the bankruptcy committee the ABA family Law section and currently is a subcommitteeco-chair for the Litigation Section.

3 She has received many accolades, including Section of theYear and Outstanding Woman in the Profession; and is regularly named a Georgia SuperLawyer, one of the top 50 women and one of the top 100 Lawyers in the State. A graduate ofEmory, Shayna frequently lectures and has authored many publications, including The FamilyLawyer s Guide to bankruptcy , which is in its 3rd Prior to 1994: debtors3 could eliminate non-support (property division) debt under a divorcedecree. In 1994 Congress added 523(a)(15) creating a balancing test to determine whethernon-support (property division) debts could be discharged. In 2005 Congress passed Following, BAPCPA, Debtors can no longer dischargeproperty division debts in a Chapter 7 or Chapter 11 or Chapter 12 case.

4 The only option todischarge non-support debts is in a completed Chapter 13 case. This means that attorneys need to pay attention to stare decisis opinions in citing cases in briefsbecause cases entered by Judges while different laws applied would result in different BAPCPA CHANGES New automatic stay provisions ( 362); New definition of Domestic Support Obligation (DSO) ( 101(14A)); New discharge provisions ( 523). BASICS: CHAPTERS OF bankruptcy Debtors file for bankruptcy under different Chapters of the bankruptcy Code, found underTitle 11 of the a bankruptcy case is filed, the person filing the case is called the debtor . 101(13) of the bankruptcy Code specifically defines bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

5 This was anamendment to the bankruptcy Code and not a replacement of the bankruptcy Code. There issome research to indicate that it helped to precipitate the financial collapse that came over thenext few Chapters 1, 3 and 5 apply to all Chapters of bankruptcy . Chapters 7, 9, 11, 12, 13 and 15 govern different types of bankruptcy for different types ofentities. There are different filing eligibility requirements for the various Chapters and there are prosand cons to each chapter. Divorce Lawyers (and individuals) generally run across Chapters 7 and 13. Sometimes they will see a Chapter 11 or 7, 11, 12 AND 13 Chapter 7 is a straight liquidation proceeding whereby a Chapter 7 Trustee is appointedand non-exempt assets are turned over for liquidation and payment to creditors.

6 Exemptions are determined, primarily, under state law and vary tremendously around thecountry (for example, Florida and Texas have, essentially, unlimited homestead exemptions;Georgia has a $21,000 homestead exemption). Chapter 11 is generally used by large companies and for higher wealth individuals (thinkMcCourt of the Dodgers). It is a very expensive and cumbersome reorganizationproceeding. An individual must pay his or her disposable income over a 5 year period tohis or her creditors. Chapter 13 is an individual reorganization case and requires the payment of disposableincome over three to five years to creditors. This is oftentimes used to recover cars fromrepossession, homes that are on the verge of foreclosure and/or to eliminate Chapter 12 is a reorganization case for the family farmer and the family fisherman and workslike a Chapter AUTOMATIC STAY: WHAT DOES IT SAY?

7 362 describes the automatic stay and should be treated as a statutory injunction against theWORLD. In the context of family law, the automatic stay applies to property divisions where the divorcecourt is trying to modify marital property between the debtor and non-debtor - thus division ofproperty and enforcement of property settlements are probably subject tothe automatic stay. All collection activity must cease unless there is an exception. Income Deduction Orders are not stopped so get one if you can! to the automatic stay 362(b)(2) Establishment of paternity; Establishment or modification of an order for domestic support obligations; Child custody or visitation; Terminating marital status; Domestic violence proceedings; Collecting DSO obligation from property that is not part of Jurisdiction May exist Between the State and Federal Courts Asto Which Court can decide if the Automatic Stay Applies but Getting itWrong comes with a steep price Sanctions under 362(k) If there is a willful violation of a stay - the injured party can recover actual damages includingfees and potentially punitive damages; Courts have held that only the bankruptcy court has jurisdiction5.

8 Courts have held that there is concurrent jurisdiction between the state court and IS A DSO? Specifically defined under 101(14A);5 Gruntz v. County of Los Angeles (In re Gruntz), 166 1020, reh g granted, 177 (9th Cir. 1999); Rainwater v. State of Alabama (In re Rainwater), 233 126 (Bankr. 1999); In re Raboin, 135 682 (Bankr. D. Kan. 1991); and In re Sermersheim, 97 (Bankr. Ohio 1989) v. Cost Control Mktg. & Sales Mgmt. of Virginia, Inc., 64 920 (4th ); Picco v. Global Marine Drilling Co., 900 846 (5th Cir. 1990); Brock v. MorysvilleBody Works, Inc., 829 383 (3d Cir. 1987); Hunt v. Bankers Trust Co., 799 1060 (5thCir. 1986); NLRB v. Edward Cooper Painting, Inc., 804 934 (6th Cir. 1986); Erti v.

9 PaineWebber, Jackson & Curtis, Inc. (In re Baldwin-United Corp. Litig.), 765 343 (2d Cir. 1985);In re Glass, 240 782 (Bankr. Fla. 1999); Pope v. Wagner (In re Pope), 209 1015(Bankr. Ga. 1997); and Martinez v. Buckley (In re Martinez), 227 442 (Bankr. ).5 A debt that accrues before, on, or after the date of the order for relief in a case under this title,that is owed to or recoverable by a spouse, former spouse, or child of the debtor or such child sparent, legal guardian, or responsible relative; or a governmental unit; Is in the nature of alimony, maintenance, or support (including assistance provided by agovernmental unit) of such spouse, former spouse, or child of the debtor or such child s parent,without regard to whether such debt is expressly so designated; Established or subject to establishment before, on, or after the date of the order for relief in acase under this title, set forth in a separation agreement, divorce decree, or property settlementagreement.

10 An order of a court of record; or a determination made in accordance with applicablenonbankruptcy law by a governmental unit; and not assigned to a nongovernmental entity, unlessthat obligation is assigned voluntarily. IS A DSO TREATED IN bankruptcy ? A DSO is NEVER discharged!!!! (Chapter 7, 11, 12 or 13); Pre-petition DSO payments are not considered a preference under 547(c)(7); Any DSO arrearage is afforded priority treatment under 507(a)(1); Any DSO must be paid in full to obtain a confirmed Chapter 11, 12 or 13 plan ( 1129, 1222,1225 and 1322 and 1325); There are exceptions to the automatic stay to collect DSOs under 362; The Debtor must stay current on post-petition DSO payments in order to receive a discharge inChapters 12 and 13; (See, 1228 and 1328);6 The case may be dismissed or converted if on-going DSO payments are not made in Chapters11, 12 and 13.