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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33536
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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How does filing for Chapter 11 affect the spouse during divorce

Resolved Question:

• How does filing for Chapter 11 affect the spouse during divorce litigation especially since it was filed after the divorce filing?
• The divorce paperwork, i.e. declarations shows that the majority of the living expenses were paid through the businesses. How is this treated in a BK case?
• Is he compelled to list all of the business assets?
• Since my ex owes me support, Should I wait to take action to collect on this debt until my ex’s case is over? Are my chances to collect better once other debts are discharged? Can my temporary support order be reduced?
• Do bankruptcy courts honor divorce documents in categorizing debts as support or property settlement obligations?
• How should I be prepared for the Meeting of Creditors? (June 29th) Can I ask questions while present? If so, what questions should I ask?
• How are entities listed as creditors that are not owed anything treated? Why would a debtor list them? Does this prevent such entities from future claims?
• What are my options as far as contesting a fraudulent BK case? How am I affected if it is discovered that he filed a fraudulent case? How do I protect my interests? What will happen to him should he be found filing a bogus BK?
• If he fails to complete and submit all of the required documentation, what is my recourse? Can he file an extension based on the premise of filing supplemental documentation after the fact? How long of an extension and how many extensions are allotted?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.
• How does filing for Chapter 11 affect the spouse during divorce litigation especially since it was filed after the divorce filing?

A: It stays any part of the dissolution action dealing with a division of property (i.e., assets, debts and attorney's fees). It does not stay child support or spousal support determinations or hearings, as long as the court is not being asked to determine a property issue. That said, judges will not generally proceed with any hearings or determinations until the non-bankruptcy debtor spouse obtains an order of relief from the bankruptcy stay from the bankruptcy court.

• The divorce paperwork, i.e. declarations shows that the majority of the living expenses were paid through the businesses. How is this treated in a BK case?

A: A business bankruptcy does not stay a divorce proceeding by the business owner, unless the debtor business is a sole proprietorship or general partnership. Though, as a practical matter, if evaluating the business is required to divide the spouse's property, then some portions of the divorce will not be able to continue without a lift of stay, because the business cannot be deposed as a third-party witness without violating the stay.

• Is he compelled to list all of the business assets?

A: No, because as the owner of the business, he is entitled to protection from debt collection against the business, until the bankruptcy stay is lifted with regard to the dissolution action.

• Since my ex owes me support, Should I wait to take action to collect on this debt until my ex’s case is over?

A: Only you can decide upon a course of action. If it were me, I would ask for a lift of the stay to the extent necessary to proceed with discovery in the dissolution concerning any child or spousal support related matter, on grounds that the debts are nondischargeable, and a support order is not applicable to the business.

Are my chances to collect better once other debts are discharged?

A: You would have more certainty about the future outcome. But, the other spouse could stall the Chapter 11 for a long time, and by your not trying to collect, you don't give the bankruptcy court any reason to move things along in bankruptcy court.

Can my temporary support order be reduced?

A: By the family court: yes, but only based upon proof of a material change in your spouse's and your circumstances. By the bankruptcy court: no (or, at least it's about as likely as a snowstorm in Death Valley).

• Do bankruptcy courts honor divorce documents in categorizing debts as support or property settlement obligations?

A: Generally, no. The court looks to the substance of a debt, not to its characterization. However, where there is some ambiguity, such as where one spouse is paying the mortgage while the other spouse has possession of the family residence, a statement in a settlement agreement or statement of decision by the court characterizing a particular debt as "in the nature of support," would probably be given significant weight in any bankruptcy court decision over whether the debt is dischargeable.

• How should I be prepared for the Meeting of Creditors? (June 29th) Can I ask questions while present? If so, what questions should I ask?

A: You're entitled to ask questions about business assets and debts owed to you as a creditor of the business. You cannot turn the hearing into a search for undisclosed marital assets. For that, you would have to schedule a special deposition under the bankruptcy code. The reason is that your search for marital assets is irrelevant to the bankruptcy or the other creditors. Businesses do not divorce -- only the business owners divorce. Re specific questions, that is a huge subject, and if you want a separate discussion of this issue, I suggest that open an new question and consider multiplying your current offer price by 30.

• How are entities listed as creditors that are not owed anything treated?

A: If you filed a proof of claim or were listed as a creditor by the business, then you can ask the same questions as any other creditor. But, you can't start fishing for marital assets, or the trustee will probably stop you.

Why would a debtor list them? Does this prevent such entities from future claims?

A: Yes. Assuming that the debts are dischargeable.

• What are my options as far as contesting a fraudulent BK case? How am I affected if it is discovered that he filed a fraudulent case? How do I protect my interests? What will happen to him should he be found filing a bogus BK?

A: You can object to plan confirmation, request a dismissable based upon the debtor's bad faith actions, sue the debtor in an adversary proceeding in order to prove that a particular fraudulent debt or debts is nondischargeable. This is also a huge subject, because like the previous one concerning deposition of the debtor, it involves questions of federal civil procedure, evidence, discovery and trial practice. You are not going to learn this for $25, 250, or $2,500. If you have a lot of money at stake, then you will need to hire a business bankruptcy lawyer to assist your family law attorney in recovering your marital property. And, you can expect to spend at least $10,000 (and probably more like $20,000) in litigation fees in your quest.

• If he fails to complete and submit all of the required documentation, what is my recourse?

A: Move to dismiss the bankruptcy on grounds of bad faith.

Can he file an extension based on the premise of filing supplemental documentation after the fact?

A: Chapter 11 actions are very flexible. Unless you try to dismiss the action, the court is likely to give the debtor broad latitude in managing the case. So, you will have to push (file motions, contested matters or adversary proceedings), or nothing is likely to happen.

How long of an extension and how many extensions are allotted?

A: See above.

Hope this helps.

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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33536
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 3 other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.

With regard to question : How are entities listed as creditors that are not owed anything treated?

 

My son is listed as a creditor

My ex-husband and his wife are listed as creditors, and

my boyfriend and the company he works for are listed as creditors.....

 

A non-cleets order was entered last year for harrassing me, and he has harrassed my son and boyfriend. I KNOW FOR A FACT that these individuals are not owed anything to my soon to be ex. I want to make sure that this does not give him a loop hole to continue to harrass my family and friends leaving them without legal recourse. Does this fall under the category of a non-dischargeable debt?

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