How Bankruptcy Affects Georgia Court’s Jurisdiction in Divorce Matters

Exclusive Jurisdiction of the Bankruptcy Court:  When your client or your client’s ex files bankruptcy in the middle of a divorce or other domestic proceeding, there are certain issues that can only be heard by the bankruptcy court because they are considered “core” issues related to the bankruptcy case itself.  11 U.S.C. Section 157.  Where an issue is exclusively under the jurisdiction of the bankruptcy court, it can be rendered voidable if decided by another court.  Thus, you have to act carefully in order to prevent such a result.

Here are some issues where the bankruptcy court has exclusive jurisdiction:

• Granting Relief from the Automatic Stay:  the bankruptcy court is the only court that can “lift” the automatic stay or remove it in order to allow a creditor to proceed with collections against property of the bankruptcy estate;
• Determining Dischargeability of Debt Not Domestic in Nature:  the bankruptcy court is the only court that can determine if a debt that is NOT domestic support, such as payments to third parties arising out of a divorce settlement, is dischargeable; and,
• Determining Dichargeability of Debts Related to Fraud, false financial statements, embezzlement, larceny, breach of fidcuciary obligation, or willful & malicious injuries pursuant to 11 U.S.C. 523(a)(2), (a)(4), and (a)(6).

Exclusive Jurisdiction of the State Court:  There are certain issues where jurisdiction resides solely with the state court, even when there is a bankruptcy pending.  The state courts’ jurisdiction over certain domestic matters is judicially created as outlined in Ankenbrandt vs. Richards, 504 U.S. 689, 112 S. Ct. 2206 (1992).  Because the bankruptcy court derives its powers from the district court, it has no jurisdiction over these matters. Issues belonging to the state courts, rather than to the federal courts, include the determination of:

• Divorce or separation
• Determination/modification of child support or alimony
•  Child custody
•  Paternity
• Visitation

Concurrent Jurisdiction: When your client or your client’s ex files bankruptcy, the following issues may be heard by either the bankruptcy court or the state court:

• Application of Automatic Stay:  Does the automatic stay apply (ie. does the proceeding involve collecting alimony or support from property of the bankruptcy estate)? Even though there are exceptions to the automatic stay, it is sometimes difficult to determine whether the exception applies.  Thus, either the bankruptcy court or state court must make such a determination.    Examples of exceptions to the automatic stay include:
  • Collection of Domestic Support Obligations that are NOT a part of the bankruptcy estate:  A spouse or ex-spouse is not prohibited from collecting alimony or support from property that is NOT property of the bankruptcy estate pursuant to 11 U.S.C. Section 362(b)(2)(B).   Examples of property of the bankruptcy estate include real estate, claims against third parties such as personal injury suits, rents or profits, interest in companies or corporations, and personal property (bank accounts, household items, jewelry).  NOTE:  In Chapter 7 cases, POST-filing earnings/income are NOT property of the estate.  Thus, a wage garnishment of income earned after the commencement of the Chapter 7 case is okay. In Chapter 13 cases, post-filing earnings/income ARE property of the estate and can generally not be garnished. However, section 362(b)(2)(C) creates an exception to the stay for the withholding of such income for payment of a domestic support obligation under a judicial or administrative order or a statute. Alan N. Resnick & Henry J. Sommer eds., Collier on Bankruptcy ¶ 362.05[2] (15th ed., rev.2006).
    • Other Exceptions to Automatic Stay Pursuant to 11 U.S.C. Section 362(b)(2)(A):
      • Division of Property
      • Establishing Paternity
      • Modification of Support
      • Domestic Violence
      • Marriage Dissolution/Divorce

• PRACTICE TIP: Since only the bankruptcy court can grant stay relief, it may be prudent to file a motion for relief from stay in the bankruptcy court as a matter of course rather than running right into state court in order to avoid violating the automatic stay because any decisions that are rendered from a proceeding that violated the automatic stay are voidable.
• Dischargeability of Debts:  Both the bankruptcy court and the state court have jurisdiction to determine:
  • Dischargeability of Domestic Support Obligations pursuant to 11    U.S.C. Section 523(a)(5); or,
• Dischargeability of Other Debts incurred by the debtor during the    course of a divorce pursuant to 11 U.S.C. 523(a)(15).

EXCEPTIONS TO THE AUTOMATIC STAY:

11 U.S.C. SECTION 362(b)(2)(A)(i)-(v):  Exceptions to the Automatic Stay for Domestic Issues Not Involving Collections

(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay–

(2) under subsection (a)—

(A) of the commencement or continuation of a civil action or proceeding– (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or (v) regarding domestic violence;

11 U.S.C. SECTION 362(b)(2)(B): Exceptions to the Automatic Stay For Collections of Property NOT Belonging to the Bankruptcy Estate

(B) of the collection of a domestic support obligation from property that is not property of the estate

11 U.S.C. SECTION 362(b)(2)(C): Exceptions to the Automatic Stay For Payments of DSO Pursuant to Judicial/Adminstrative Order, Even If It Is Property of the Bankruptcy Estate

(C) with respect to the withholding of income that is property of the estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute

11 U.S.C. SECTION 362(b)(2)(D-G):  Other Exceptions to the Automatic Stay

(D) of the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license, under State law, as specified in section 466(a)(16) of the Social Security Act; (E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act; (F) of the interception of a tax refund, as specified in sections 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or (G) of the enforcement of a medical obligation, as specified under title IV of the Social Security Act

EXCEPTIONS TO DISCHARGEABILITY OF DEBT   

11 U.S.C. 523(a)(5) and (a)(15) 

A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(5) for a domestic support obligation; and

….

(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.