Must a chapter 13 bankruptcy debtor pay a child support arrearage in full for confirmation of the plan in Virginia?

Must a chapter 13 bankruptcy debtor pay a child support arrearage in full for confirmation of the plan in Virginia?

Not necessarily in the U.S. Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, according to In re: Edwards,  Case No. 09-16765-SSM, (Bankr., E.D. Va, January 20, 2010), and In re: Sosa, Case No. 09-13389-SSM, (Bankr., E.D. Va, January 21, 2010).  The issue in both cases was whether a claim entitled to priority under Section 507 of the Bankruptcy Code must be paid in full under the chapter 13 plan.

In the Edwards case, the debtors filed for bankruptcy relief under chapter 13 with priority claims of $80,038 in taxes and unpaid child support.  Their budget showed an income withholding order for child support to the California Department of Child Support Services (DCSS).  The debtor husband had two adult children for which he owed child support arrearage and it was not clear whether the unpaid child support would be paid over by DCSS to the mother of the children or retained by DCSS to recoup public assistance paid or welfare paid, such as Aid to Families with Dependent Children (AFDC) or its successor Temporary Assistance to Needy Families (TANF).  In their proposed modified chapter 13 plan, the debtors were to pay priority claims with no payout to the general unsecured creditors.  The plan provided that priority taxes would be paid 100%, but the priority domestic support obligations would be paid less than 100%.  Domestic support obligations, including spousal support or alimony, and child support are priority claims under 11 U.S.C. 507(a)(1), even when the domestic support obligation is owed to a governmental unit, 11 U.S.C. 101(14A), although a domestic support obligation claim of a parent has priority over a domestic support obligation claim of a governmental unit.  The chapter 13 trustee objected to confirmation of the debtors’ proposed modified chapter 13 plan because it did not pay priority claims in full.  The bankruptcy judge recognized that under Section 1322(a)(4), a chapter 13 plan may provide for less than full payment of a certain assigned domestic support obligation claim owed directly to, or recoverable by, a governmental unit, as long as the plan provides that all of the debtor’s projected disposable income will be applied to make plan payments and the chapter 13 plan extends for at least sixty (60) months.  The unpaid balance of the domestic support obligation is not discharged and may be collected from the debtor at the conclusion of the plan.  While the case is pending, the existing income withholding order is not stayed by the automatic stay in bankruptcy.

In the Sosa case, the debtors originally filed a chapter 7 bankruptcy case, then moved the court to convert their case to a chapter 13 case.  A chapter 7 case may be converted to chapter 13 case under Section 706 of the Bankruptcy Code, provided the conversion is not in bad faith, Marrama v. Citizens Bank of Mass., 549 U.S. 365, 127 S. Ct. 1105, 166 L.Ed. 2d 956 (2007).  In their chapter 13 plan, the Sosa debtors proposed to pay only 26% of the priority domestic support obligation. The debtors’ budget included $500 a month in voluntary child support payments as an expense, leaving only $104 a month for plan payments.  The plan provided nothing for the holders of general, nonpriority, unsecured claims.   The chapter 13 trustee objected to confirmation of the plan as not being proposed in good faith, as required under 11 U.S.C. 1325(a)(3), and because the plan did not pay priority creditors in full.   The bankruptcy judge recognized that certain domestic support obligation claims could be subordinated, or paid less than 100% in a chapter 13 plan.  Claims owed to a parent or assigned voluntarily to a governmental unit for the purpose of collection cannot be subordinated.  Again, if the subordinated domestic support obligation claim is to be paid less than 100%, the plan can still be confirmed if all the debtors’ disposable monthly income is paid into the plan for the full sixty (60) months.  The judge held that the objecting party, in this case the chapter 13 trustee, has the initial burden of proving that the domestic support obligation was assigned voluntarily for the purpose of collection, and thus could not be subordinated in the plan.

In the Fourth Circuit, which includes Virginia, the standard for judging good faith is the totality of circumstances, under the case of Deans v. O’Donnell, 692 F.2d 968 (4th  Cir. 1982).  In Sosa, the judge was troubled by the debtors’ purpose in converting to chapter 13 when they were current on their mortgages and by the discrepancy between the $500 a month in child support they listed and the $185 claimed by the child support enforcement governmental unit.  As such, the Sosa case was continued for an evidentiary hearing on the issue of good faith.

You should discuss with your Virginia bankruptcy attorney whether your child support arrearage must be paid in full in a chapter 13 plan.

Should a husband or wife consent to relief from the automatic stay if he or she falls behind on the mortgage payments during a chapter 13 case in Virginia?

Should a husband or wife consent to relief from the automatic stay if he or she falls behind on the mortgage payments during a chapter 13 case in Virginia?

One of the best reasons for filing a chapter 13 bankruptcy case is to save a home from foreclosure by allowing the homeowner to make the regular post-petition mortgage payments directly to the mortgage lender outside the plan while the arrearage amount is cured in the plan through the plan payments.  Alternatively, a chapter 13 debtor may propose to sell or refinance a home with equity at some point in the plan to cure a default.  The homeowner in chapter 13 receives the protection of the automatic stay in bankruptcy found in Section 362 of the Bankruptcy Code, which prevents the creditors from trying to collect a pre-petition debt from the debtor, the debtor’s property, or the property of the estate.  This stops the mortgage lender from selling the debtor’s home at a foreclosure auction in Virginia.

Despite the best of intentions, statistics tell us that the vast majority of chapter 13 cases are not successfully completed to allow a homeowner to save his or her home.  This may happen in one of two ways, because the case is dismissed or because the lender obtains relief from the automatic stay and forecloses on the home.  A case may be jeopardized due to an unanticipated setback while the case is pending such as a job loss or unexpected illness.  In spite of these setbacks, a debtor may still be able to save the bankruptcy case itself by filing an amended or modified chapter 13 plan which makes up for missed plan payments, or by re-filing a second chapter 13 case when the debtor is back on his or her feet, provided the lender has not yet foreclosed.  If the debtor is married and the other spouse has not filed bankruptcy, the other spouse may wish to file his or her own chapter 13 case to save the home from foreclosure.

If, on the other hand, the case is continuing, but the debtor fails to make one or more of the regular mortgage payments directly to the lender, the lender will often file a Motion for Relief from the Automatic Stay, asking the bankruptcy judge to allow the lender to pursue the lender’s state law rights and remedies, including a foreclosure sale of the property in Virginia.

The debtor has a number of options when responding to a Motion for Relief from Stay.  A debtor may wish to contest the matter and request an evidentiary hearing on the issue of whether cause exists for relief from stay.  Sometimes the mortgage lender has not properly accounted for the post-petition payments made, or the party filing the motion is not the proper party or does not have standing to enforce the mortgage note in bankruptcy court.   On the other hand, a debtor may decide not to contest the motion or to consent to relief from stay.  If the case is close to dismissal for other grounds, such as default in the plan payments, the debtor may simply allow the case to be dismissed without addressing the motion, relying on the possibility of a good faith re-filing with a motion to extend or impose the automatic stay.  Again, in the case of a married couple where only one spouse has filed bankruptcy, the other spouse may now wish to file a separate chapter 13 case to save their home from foreclosure.

Perhaps the most common, though not always most advantageous, resolution of a Motion for Relief from Stay in U.S. Bankruptcy Court for the Eastern District of Virginia is known as a “drop dead order” or a “six month cure order”.  This order provides that the debtor will make up for the missed payments, plus attorney’s fees and costs, by making extra direct payments for six months to bring the post-petition account current.  This often imposes an impossible burden on a cash-strapped chapter 13 debtor, who is also responsible for making plan payments and the regular mortgage payments at the same time, particularly if all of the debtor’s disposable income is being devoted to plan payments.  If the debtor defaults in the regular payments or extra 6 payments under the drop dead order, then the lender may have to first file an affidavit of default, which, if unanswered, allows the mortgage lender to resort to its state law rights.

Under the holding of Matter of Mendoza, 111 F.3d 1264 (C.A.5 (Tex), 1997), the debtor has another option.  In certain circumstances, a debtor may be able to put the post-petition arrearage into a modified plan, to be cured along with pre-petition arrearage.  The Mendoza holding rests on the existence of equitable grounds allowing modification in the circumstances and on the particular language of 11 U.S.C. 1322(b)(5) which does not expressly limit the debtor’s right to cure a default to a pre-petition default.

You should consult with your Virginia bankruptcy attorney concerning all of your options when you must respond to a Motion for Relief from Stay in your chapter 13 bankruptcy case.

Where can a husband or wife file a divorce case?

Where can a husband or wife file a divorce case?

A husband or wife can file a divorce case in a court that has jurisdiction in a proper venue.  Jurisdiction has several different meanings and is concerned with the power of the court to decide a matter and bind the parties to the decision.  The Virginia city and county circuit courts have subject matter jurisdiction over divorce cases under Virginia Code Section 20-96.  A person must have a certain connection to the Commonwealth of Virginia in order to file a divorce case here.  At the time of filing, either the husband or wife must have been a bona fide resident and domiciliary of the Commonwealth of Virginia for at least six months preceding the filing, under Section 20-97 of the Code of Virginia.  A member of the armed forces who is stationed in or residing in Virginia and has lived in Virginia for at least six months is presumed to be a domiciliary and resident during that time.  This can include a service member being stationed on or residing in a ship that has a home port in Virginia, or being stationed on or residing on a base in Virginia, even though the federal government has exclusive jurisdiction over the base.  A foreign service officer or serviceperson who is stationed overseas at the time the divorce case is filed and who was domiciled in Virginia for at least six months before being stationed overseas is deemed to be a bona fide resident and domiciliary of Virginia.

There are more complex issues involved when the husband and wife live in different states, giving rise to the concept of divisible divorce.  The two primary constitutional issues are the due process of law we are all entitled to and the full faith and credit each state must give to the legitimate acts of sister states.  The marriage itself can be thought of a thing, a res, that follows each of the parties wherever he or she may be domiciled.  Either party may obtain a dissolution of the marriage in a state with jurisdiction over the marriage, known as in rem jurisdiction.  On the other hand, the marriage also creates property rights and duties, including a right to support.  A state may only bind a party to its orders concerning property rights if that state has jurisdiction over that particular person.  This requires more than simply one spouse being a domiciliary of that state.  Under the due process requirements of the U.S. Constitution, a person must have a certain minimum amount of contacts with the state in order for that state to affect that person’s property rights.  When a state exercises jurisdiction over a nonresident, the state is said to be exercising “long-arm jurisdiction”, in effect pulling that out-of-state resident into that state with a long arm to affect that person’s property rights.

Virginia has a long arm jurisdiction statute in Code Section 8.01-328.1 that allows Virginia to exercise jurisdiction over a person in another state when certain connections exist.  Particularly relevant to divorce cases, these connections include owning real estate in Virginia, executing a support agreement in Virginia, being ordered to pay spousal or child support by a court in Virginia that has personal jurisdiction, fathering or conceiving a child in Virginia, or having a marital domicile in Virginia prior to separation.

Venue is the proper place in Virginia where a Virginia case should be heard and is more concerned with the convenience of the parties.  Section 8.01-261(19) of the Code of Virginia sets forth the preferred venue for a divorce case as “the county or city in which the parties last cohabited, or at the option of the plaintiff, in the county or city in which the defendant resides, if a resident of this Commonwealth…”.  If the defendant is served by publication, then the preferred venue is the city or county where the plaintiff resides.

You should consult with your Virginia divorce lawyer concerning the proper jurisdiction and venue of your divorce case.

Where a Virginia divorce court judge orders husband to pay a certain amount of support per month, decreasing each year for three years total, is this lump sum alimony payable in deferred payments or a periodic payment subject to modification by husband’s bankruptcy discharge of an equitable distribution award to wife?

Where a Virginia divorce court judge orders husband to pay a certain amount of support per month, decreasing each year for three years total, is this lump sum alimony payable in deferred payments or a periodic payment subject to modification by husband’s bankruptcy discharge of an equitable distribution award to wife?

In Dickson v Dickson , the Virginia Court of Appeals ruled that the award of spousal support was a periodic payment award subject to modification upon a change in circumstances such as husband’s bankruptcy discharge of the equitable distribution award to wife.

The final decree of divorce entered in husband and wife’s divorce case provided for support, equitable distribution and attorney’s fees and costs.  The decree provided that husband would pay to wife a fixed monthly amount of support for three years, with decreases to lower fixed monthly amounts in each of last two years.  After entry of the divorce decree, husband filed a chapter 7 bankruptcy case and discharged over $620,000 in debt, including the equitable distribution award to wife.  The wife filed a petition to increase support based on a material change in circumstances, the bankruptcy discharge.  The husband responded by filing a petition to decrease support.  The Virginia trial court judge ordered husband to pay spousal support at the rate specified for the third year of the prior award to wife indefinitely until the death of either party or the remarriage of wife, subject to future modification.  The husband appealed the modification of support to the Virginia Court of Appeals.

On appeal, the husband contended that the trial court did not have jurisdiction to modify the award pursuant to Code Section 20-109 because it was a lump sum award.  Virginia Code Section 20-109 provides that upon the “petition of either party the court may increase, decrease, or terminate the amount or duration of any spousal support and maintenance that may thereafter accrue, whether previously or hereafter awarded, as the circumstances may make proper.”

The Virginia Court of Appeals ruled in favor of the wife.  The court noted that the final decree did not establish a final amount of support payable, even though a final amount could be calculated from the face of the decree.  The court also relied on the fact that the divorce court judge did not find special circumstances or compelling reasons requiring a lump sum payment.  In addition, the decree expressly characterized the support as a periodic payment.  Finally, the husband had applied for a modification of support himself, and would not be allowed to take contradictory and inconsistent positions.

The husband also contended that the discharge in bankruptcy was not a change in circumstances warranting a change in support.  The Virginia Court of Appeals noted that the trial court judge relied on the fact that wife would not receive the equitable distribution award that she had expected, an important factor in deciding on the amount of support under Section 20-107.1 (E)(8) of the Code of Virginia.  As this was a case of first impression, the Virginia Court of Appeals looked to case law from other jurisdictions, including Siragusa v. Siragusa, 843 P.2d 807 (Nev. 1992), from the Nevada Supreme Court, which recognized the tension between the federal supremacy clause and the equitable interests of the state in not allowing one spouse to deprive the other of marital property.  While the purpose of bankruptcy is to provide a fresh start to an honest debtor, the state has an even greater interest in resolving domestic disputes.  The Virginia Court of Appeals adopted the majority position that the discharge in bankruptcy was a change in circumstances justifying a modification of support, although the amount of alimony should not be a substitute for the amount discharged in bankruptcy.  The court noted that although husband’s income had decreased, his overall financial condition had improved following the discharge in bankruptcy as he still owned a vacation beach condo and a $50,000 matched asset plan while the wife was unemployed and without health insurance, and had nearly exhausted her retirement account.  The trial court’s decision was not plainly wrong or without evidence to support it.

You should consult with your Virginia bankruptcy or divorce lawyer to determine if your former spouse’s bankruptcy justifies a modification of support.

What are eligibility requirements for filing chapter 13 bankruptcy for a husband or wife in Virginia?

What are eligibility requirements for filing chapter 13 bankruptcy for a husband or wife in Virginia?

A husband or wife in Virginia must meet certain requirements in order to be eligible for chapter 13 relief.  These requirements are set forth in Section 109 of the Bankruptcy Code, Title 11 of the U.S. Code.  First, Chapter 13 relief is limited to individuals, it is not available to corporations, partnerships or limited liability companies.  Only an individual or an individual and his or her spouse can file for chapter 13 relief.

Second, the individual must have regular income.  At one time, chapter 13 relief was limited to wage-earners, now chapter 13 relief is available to individuals with income from one of a variety of sources, including social security, self-employment, or a pension.  In re: Estus, 695 F.2d 311 (8th Cir., 1982).

Third, there are limitations on the amount of debt that an individual can have to qualify for chapter 13 relief.  The debt limitations can change every three years on April 1st, starting on April 1, 1998, under Bankruptcy Code Section 104.  As of the date this was posted, the debt limitations for chapter 13 relief are $383,175 in noncontingent, liquidated, unsecured debts and $1,149,525 in noncontingent, liquidated, secured debts.   Periodic adjustments to values, or the calculations for such periodic adjustments, are shown in the Federal Register and on the Eastern District of Virginia, Richmond Division website.

With certain exceptions, just as for chapter 7 relief, the individual must complete credit counseling prior to filing bankruptcy.  A person who has voluntarily dismissed a prior chapter 13 case following the filing of a Motion for Relief from the Automatic Stay may not be eligible for 180 days, although this requirement has been interpreted in several different ways, including as a temporal requirement or equitably, focusing on the use of the word “following” instead of “after”.  In re: Sole, 233 B.R. 347 (E.D. Va. Bkr., 1998).  A debtor may also be barred from refiling by a prior court order from the Bankruptcy Court for certain cause, including a prior abuse of the process or bad faith in a prior case.

You should consult with your Virginia bankruptcy lawyer concerning your eligibility for chapter 13 relief.

Which courts hear bankruptcy and family law matters in Virginia?

Which courts hear bankruptcy and family law matters in Virginia?

Virginia lawyers and judges use the term jurisdiction to describe the power of a court to hear and decide a particular matter concerning a particular person or thing.  Venue is used to describe the most appropriate or convenient court in Virginia to hear a particular matter, usually from a number of different possible courts with jurisdiction.  In the Richmond, Virginia area, the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division, has jurisdiction and venue over bankruptcy cases when the debtor’s domicile, residence, principal place of business or principal principal assets were located, for the greater portion of the preceding 180 days in cities of Richmond, Colonial Heights, Emporia, Fredericksburg, Hopewell, or Petersburg, or the counties of Amelia, Brunswick, Caroline, Charles City, Chesterfield, Dinwiddie, Essex, Goochland, Greensville, Hanover, Henrico, King and Queen, King George, King William, Lancaster, Lunenburg, Mecklenburg, Middlesex, New Kent, Northumberland, Nottoway, Powhatan, Prince Edward, Prince George, Richmond County, Spotsylvania, Surry, Sussex or Westmoreland.

Bankruptcy concerns both federal and state law while family law is predominantly state law.  Congress was given the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States;..” in Article I, Section 8 [4] of the U.S. Constitution.  In Section 151 of Title 28 of the U.S. Code, bankruptcy courts and judges are made a part of the U.S. District Court system.  The Bankruptcy Code is contained in Title 11 of the U.S. Code.  The power of the Bankruptcy Courts is defined in Section 105 of Title 11, which include the broad-reaching, equitable power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [Title 11 of the U.S. Code]”.  By virtue of a standing order entered in the U.S. District Court for the Eastern District of Virginia, bankruptcy related matters have been referred to the bankruptcy judges in this district.   As discussed in answer to the question, “What kind of property can a husband or wife protect in bankruptcy?”, Virginia has “opted out” of the property protections or exemptions provided in the Bankruptcy Code, so Virginia residents use the Virginia state law exemptions, along with various non-Bankruptcy Code federal exemptions, to protect property in bankruptcy.  Thus, bankruptcies in Virginia are concerned with Virginia property law, and Virginia divorce or family law.

The Virginia Circuit Courts have exclusive, original jurisdiction over divorces and related matters, including spousal support and maintenance, child support, child custody, child visitation, and equitable distribution, the process of dividing up marital property and marital debt.  Most of the Virginia statutes concerning domestic relations, marriage and divorce are contained in Title 20 of the Virginia Code.  The Virginia Juvenile and Domestic Relations District Courts share jurisdiction with the Circuit Courts over certain family law matters, including child custody, child visitation, child support, spousal support or maintenance, as defined in Section 241 of Title 16.1 of the Code of Virginia, but not over divorce or equitable distribution.

You should consult with a Virginia bankruptcy or family law lawyer to discuss which court is the proper court to hear your legal matter.

Will a court reduce husband’s spousal support due to changes in the economy and the real estate market?

Will a court reduce husband’s spousal support due to changes in the economy and the real estate market?

In an unpublished opinion, the Virginia Court of Appeals upheld the Circuit Court’s denial of a reduction in the case of Lane v. Lane, Record No. 0951-09-4 (September 15, 2009)  . The husband and wife were married for twenty-four years before separating. At the time the parties entered into a separation agreement, husband was a CEO of a company and made more than half a million a year in salary.  In the separation agreement, the husband agreed to pay to wife $6,000 a month in spousal support with the following condition:

“[Wife] agrees to make a good faith effort to obtain a job so that she may become more financially self-sufficient. If [husband]’s income is reduced substantially through no voluntary act on his part, the amount of spousal support to be paid shall be subject to renegotiation and modification within six weeks of such a reduction. If [husband] and [wife] are unable to agree as to the amount of support to be paid, then they agree to return to mediation in an attempt to resolve these issues before taking any legal action.”

The separation agreement was incorporated into the final decree of divorce.  Three years after the date of the property settlement agreement, husband’s company was bought by another company.  The husband began investing in real estate projects and the stock market.  With the onset of the recession in 2007 and 2008, husband experienced a substantial reduction in his income.

After the divorce, the wife became a real estate agent in an attempt to become self-sufficient.  After she was diagnosed with cancer four years later, wife exited the real estate business.

The husband made a motion to reduce his spousal support obligation in the Virginia Circuit Court.  The divorce court judge found the necessary material change in circumstances to modify support, but held that the involuntary change in husband’s income did not warrant a reduction in spousal support.   The trial court also held that wife had made a good faith effort to obtain employment and income.  The husband appealed the judge’s denial of his motion to reduce spousal support.

The Virginia Court of Appeals first restated its standard of review, that it would not disturb a trial court’s decision where it is based on an ore tenus hearing, unless it is ‘plainly wrong or without evidence in the record to support it.  Citing Virginia Code Section 20-109(C), the court recognized that it’s authority was limited by the stipulation or contract between the parties. In this case, the separation agreement provided for a reduction in support when husband’s income decreased through no fault of his own.  A party moving for a reduction in spousal support must prove both a material change in circumstances and that the change justifies a reduction in support.  The material change must relate to the ability of the spouse paying support to pay or the needs of the spouse receiving support.  Here, although the husband had prudently decided to invest in the stock market and was not required to use his investments for support, the husband was in good health, had better earning capacity than wife, and had enjoyed a higher standard of living than during the marriage.  The divorce court judge found that wife had a greater need for support due to her health and the husband was not less able to provide support to her.  Consequently, although there had been a material change in circumstances, that change did not justify a modification of support.  The trial court’s ruling that wife had made a good faith effort to secure employment was supported by the evidence.  The Virginia Court of Appeals recognized that the trial court judge, as fact finder, properly ascertained wife’s credibility, determined the weight to be given to her testimony, and had the discretion to accept or reject any of the wife’s testimony.  The court declined to award either appellant or appellee attorney’s fees and costs.

You should consult with your divorce lawyer to discuss whether the consequences of the current recession justify a modification of a support obligation in your case.

How should an income tax refund from a joint tax return be divided between a husband and wife in a Virginia bankruptcy case?

How should an income tax refund from a joint tax return be divided between a husband and wife in a Virginia bankruptcy case?

In the case of In re: Lyall, 191 B.R. 78 (E.D. Va., 1996), the U.S. District Court for the Eastern District of Virginia ruled that the tax refund had to be divided in proportion to each spouse’s withholding rather than divided equally or divided in proportion to each spouse’s percentage of the total income.  The husband had filed a chapter 7 bankruptcy case in the Eastern District of Virginia Bankruptcy Court without his wife.  In the bankruptcy case, the Debtor husband listed on his Schedule B, as part of the property of the estate under Section 541 of Title 11, the Bankruptcy Code, a tax refund, which the husband claimed as exempt on Schedule C under the Virginia Homestead Exemption found in Section 34-4 of the Code of Virginia.   A creditor objected the husband’s claimed exemption of the tax refund.  Although most of the couple’s income had been derived from the husband’s withholdings, the bankruptcy court judge ruled that the husband and wife were each entitled to 50% of the tax refund, based on the case of Bass v. Hall, 79 B.R. 653 (Bankr., W.D. Va., 1987).

On appeal, the United States District Court for the Eastern District of Virginia disagreed.  The court recognized that there were three positions across the county: a majority position which held that the tax refund should be allocated proportionally according to each spouse withholding in the relevant year, a position that the tax refund should be allocated equally without regard to income or withholding, and a position that the refund should be allocated in proportion to each spouse’s income produced.  The court agreed with the majority position on the grounds that the income withheld would have been the husband’s property if the withholding amount were correct, and the husband could not have transferred that amount of income to the wife before filing because that transfer could be set aside as a fraudulent transfer.  The court recognized the well-established law that the filing of a tax return does not alter the property rights between the spouses, citing In re: Wetteroff, 453 F.2d 554 (8th Cir, 1972) .

You should consult with your Virginia bankruptcy lawyer concerning your property rights in a tax refund from a joint tax return with your husband or wife.

 

 

Must a wife file a complaint objecting to the dischargeability of a domestic support obligation in husband’s chapter 7 bankruptcy case in Virginia?

Must a wife file a complaint objecting to the dischargeability of a domestic support obligation in husband’s chapter 7 bankruptcy case in Virginia?

No, the spouse does not have to file a complaint objecting to the dischargeability of a domestic support obligation in his or her spouse’s chapter 7 bankruptcy case.  Domestic support obligations are automatically nondischargeable in bankruptcy and both the federal and state courts have jurisdiction over cases involving the dischargeability of a family law debt.  In the greater Richmond metropolitan area, this means this issue of the dischargeability of a particular debt related to a separation or divorce, or support, in bankruptcy may be decided in the Virginia Circuit Courts or Juvenile and Domestic Relations District Court for Chesterfield County, Hanover County, Henrico County or the City of Richmond, or the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division.

Under Section 523 of the Bankruptcy Code, certain debts are not dischargeable in bankruptcy.  The types of debts that may be automatically nondischargeable include certain types of taxes or customs duties; domestic support obligations; certain fines, penalties or forfeitures owed to the government; most student loans; personal injury or wrongful death caused by operating a vehicle while intoxicated; a debt that was or could have been listed in a prior case in which the debtor waived, or was denied, a discharge; a judgment, order or decree concerning fraud or defalcation as a fiduciary of a federally insured depository or credit union; a malicious or reckless failure to fulfill a commitment to a  Federal depository institutions regulatory agency to maintain capital; criminal restitution under Title 18 of the U.S. Code; a debt incurred to pay a nondischargeable tax to the U.S. or other governmental unit; fines or penalties imposed under Federal election law; certain family law debts that are not Domestic Support Obligations; certain post-petition homeowner or condominium association dues; fees, costs and expense on a prisoner for filing a case, motion, complaint or appeal; debt owed to certain retirement plans; and certain violations of Federal securities law.  Several types of debts are only potentially nondischargeable;  these debts will be discharged unless the creditor files a complaint or adversary proceeding within sixty (60) days following the date first set for the meeting of creditors objecting to the discharge of a debt based on fraud, false pretenses, use of a false financial statement in writing; fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny; or wilfull and malicious injury by the debtor to another entity or the property of another entity.

Domestic support obligations and family law debts that are not domestic support obligations do not require the filing of a complaint within a certain time period for the debts to be nondischargeable.  As answered in the question, “Can My Spouse Discharge a Family Law Debt in Bankruptcy?”, while domestic support obligations are nondischargeable in all bankruptcies, family law debts that are not domestic support obligations may be discharged in a chapter 13 case, but not in a chapter 7 case.

You should consult with your Virginia bankruptcy or divorce lawyer concerning the dischargeability of family law debts in bankruptcy.

What kind of property can a husband or wife protect in bankruptcy?

What kind of property can a husband or wife protect in bankruptcy?

Both federal and state laws allow a husband or wife, living together or separated, to protect certain property from creditors.  The protected property may automatically be, or can become, exempt from creditor collection process.  Consequently, these laws are known as exemptions and the property is called exempt property.  As explained below, a divorce can affect the property that can be protected from creditors, in or out of bankruptcy.

Bankruptcy law is concerned with both federal and state law, and the conflict between the two.  The bankruptcy code itself is federal law.  The bankruptcy courts are part of the federal court system, with appeals to the U.S. District Court.  Family law and property law are largely state law.  The bankruptcy code respects this division between federal and state law by allowing each state to provide its citizens with state law exemptions in bankruptcy, or the use of the federal bankruptcy exemptions, or the choice to use either.  Those states that do not allow their citizens to use the federal bankruptcy exemptions, like the Commonwealth of Virginia, are said to have “opted out” of the federal bankruptcy exemptions contained in Section 522(d) of the Bankruptcy Code.  Section 34-3.1 is the “opt-out” statute which restricts the use of the bankruptcy exemptions in Virginia.

Prior to enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in October 2005, it was possible for a person contemplating bankruptcy to choose to reside in a state with generous exemptions, especially a state with a generous homestead exemption like Florida or Texas.  The person contemplating bankruptcy could protect assets by buying an expensive home that was protected under state law.

Section 522 attempts to eliminate such forum shopping by introducing a look back period into a person’s right to claim exemptions.  Domicile is a person’s legal home, where he or she permanently resides, while residence is a person’s physical location.  A person’s domicile is where a person intends to reside for the indefinite future.  Under Section 522(b)(3)(A), the debtor’s domicile for the 730 day period immediately preceding the filing of the bankruptcy determines the state law that applies to the debtor’s case.  If the debtor has more than one domicile during the 730 day period, then the domicile which occupied the greater portion of the 180 day period prior to the 730 period will determine which state’s laws are applicable.

A husband or wife who was domiciled in Virginia during the relevant period can use various Virginia state law exemptions and certain non-bankruptcy federal exemptions, the tenancy by the entirety with the common-law right of survivorship to protect real estate, and federal bankruptcy exemptions protecting certain retirement funds, including 401(k)s and IRAs within limits.  Most of the Virginia state law exemptions are contained in Title 34 of the Code of Virginia, including the homestead exemption in Section 34-4 and the poor debtor’s exemptions in Section 34-26 .   A handy reference guide to the federal and Virginia exemptions is found in the official court form “Request for Hearing – Notice of Exemption Claimed” made available to judgment debtors subject to creditor process in Virginia, on the Virginia court’s website , which lists the following exemptions:  Social Security benefits and Supplemental Security Income at 42 U.S.C. Section 407 ; Veteran’s benefits at 38 U.S.C. Section 5301;  Federal Civil Service retirement benefits at 5 U.S.C. Section 8346   ; Annuities to survivors of federal judges at 28 U.S.C. 376(n)  ; Longshoreman and Harborworkers Compensation Act at 33 U.S.C. Section 916  ; Black lung benefits at 30 U.S.C. Sections 931   and 932  ; Seaman, master, or fisherman’s wages, except for child or spousal support and maintenance at 46 U.S.C.A. Section 11109  ; Unemployment compensation benefits at Section 60.2-600 of the Code of Virginia ; portion of wages not subject to garnishment in Section 34-29 of the Virginia Code ; public assistance payments in Section 63.2-506 of the Code of Virginia  ; the homestead exemption and the additional exemptions for dependents, older residents and disabled veterans at Section 34-4.1 of the Code of Virginia  ;  the poor debtor’s exemptions and agricultural exemptions in Section 34-27 of the Virginia Code  ; worker’s compensation in Section 65.2-531 of the Code of Virginia   ;  growing crops in Section 8.01-489 of the Code of Virginia  ; benefits from group life insurance policies in Section 38.2-3339 of the Virginia Code   ; proceeds from industrial sick benefits insurance in Section 38.2-3549  ; assignments of certain salary and wages in Section 55-165 of the Code of Virginia ; pre-need funeral contracts at Section 54.1-2823 of the Virginia Code  ; benefits for victims of crime at Section 19.2-368.12 of the Code of Virginia  ;  and certain retirement benefits at Section 34-34 .

In a family law case, you should check with a Virginia bankruptcy or family law lawyer to determine if these exemptions apply to support or alimony protected under federal law at 42 U.S.C. Section 659 .  Child support owed to a parent is exempt under Virginia Code Section 20-108.1(G).

As discussed in answer to the question, “Is my real estate vulnerable to creditors when I divorce?”, a divorce terminates the survivorship in the tenancy by the entirety, exposing real property to the claims of either spouse.

You should consult with your Virginia bankruptcy attorney to determine what property will be protected if you should file bankruptcy in Virginia.