Posts Tagged ‘bankruptcy’

BANKRUPTCY ATTORNEY FEES

Monday, September 10th, 2012

TEMPE AND MESA ARIZONA DIVORCE AND FAMILY LAW LAWYER DISCUSSES ATTORNEY FEES AND BANKRUPTCY ISSUES

Submitted by Attorney Douglas C. Gardner

The “American Rule” regarding attorneys’ fees is that generally each party will pay his or her own attorneys fees and costs. There are, however, certain exceptions whereby the Court can order one party to pay all or some portion of the other party’s attorneys fees and costs.

In Family Law or Divorce cases in Arizona, A.R.S. § 25-324 governs when the Court can order one party to pay any portion of the other party’s fees. The Court must consider the reasonableness of the positions taken by the parties, and also the financial resources of each party. Generally, the greater the disparity in financial resources and the greater the unreasonableness of one party, the more likely the Court will order an award or attorneys fees.

A related issue that has arisen more often over the last few years with the terrible economy is when and whether these attorneys fees can be discharged in bankruptcy. As a general rule, money owed to a spouse or former spouse (such as for property settlement issues) can be discharged in a Chapter 13 Bankruptcy, though spousal support and child support are not dischargeable in any bankruptcy.

Attorneys fees fall in the grey area, and may be discharged in certain cases. The argument is that since the Court considers the financial resources of the parties, that it can be considered to be support in nature. The argument would be very strong if the primary issues litigated are child support and/or spousal support.

The Bankruptcy Code, 11 U.S.C. §523(a)(5) states that a bankruptcy discharge does not discharge support obligations. In re Catlow, 663 F.2d 960, 963 (9th Cir. 1981) recognizes that attorney’s fees awarded under Arizona law in a divorce action may be support obligations). In re Bradshaw, No. BR-05-24647-PHX-CGC, 2007 Bankr. LEXIS 2892 at *4 (D. Ariz. Aug. 24, 2007) provides a similar analysis. In re Jarski, 301 B.R. 342, 347 (D. Ariz. 2003) further discusses the issue. Finally, Magee v. Magee, 206 Ariz. 589, 592, 81 P.3d 1048, 1051 (App. 2004) states that, in Arizona, as a matter of public policy, an award of attorney’s fees is “derived from and justified by the duty of support”.

If you are involved in a divorce case involving attorneys fees, bankruptcy, or other simple or complex issues and want experienced legal representation, please call 800-899-2730 and ask to speak with Douglas C. Gardner, or visit our website at yourarizonadivorcelawyer.com.

Arizona Attorney Discusses Child Support and Spousal Maintenance Issues in Bankruptcy

Monday, March 7th, 2011

As a lawyer with many cases in Phoenix and Mesa, Arizona and throughout the state, I often encounter family law cases in which a bankruptcy has been or will be filed. Both parties need to understand what will happen with child support and spousal maintenance in a bankruptcy case.

First, from the point of view of the debtor or person filing bankruptcy in which case the debtor is obligated to pay child support or spousal support: bankruptcy will not discharge an obligation to pay child support or spousal maintenance. Bankruptcy can, in certain cases, discharge or eliminate other types of debts to a spouse or former spouse. However, child support and spousal support will need to be modified or terminated through the family law courts. If you have other debts to a spouse or former spouse which you want to eliminate in bankruptcy, you will need to hire an attorney that can answer your questions and help you through this difficult process. 

Second, still from the point of view of the debtor or person filing bankruptcy, but this time the debtor is receiving child support or spousal support: Your right to collect child support and spousal maintenance is not an asset that can be taken from you in bankruptcy. The income that you receive from actual payment of support will affect your bankruptcy, as more income may make it difficult to qualify to file for certain types of bankruptcy. You will need to ensure that your bankruptcy attorney is aware of any income you are receiving. You should also make sure that your divorce or family law attorney is aware of the status of any bankruptcy or of the potential that you will file for bankruptcy.

Third, from the point of view of the spouse or ex-spouse of a debtor, in which case the debtor is obligated to pay child support or spousal support to that spouse or ex-spouse: there is little to worry about a spouse or ex-spouse filing for bankruptcy as it pertains to child support and spousal support. These debts are not dischargeable in bankruptcy, meaning the debts will continue to be owed even after your spouse or ex-spouse completes bankruptcy. It may even be beneficial, as your spouse or ex-spouse will eliminate other debts and have more funds available to meet his or her obligations to you. Bankruptcy also gives child support and spousal maintenance a “priority,” meaning they will get paid before most other debts will get paid. However, if your spouse or ex-spouse owes you other money for property issues, or is obligated to pay debts that your name is also on, you will need to contact a bankruptcy attorney that is also familiar with divorce and family law issues to ensure that your rights are protected.

Finally, from the point of view of the spouse or ex-spouse of a debtor, and the spouse or ex-spouse is obligated to pay child support or spousal maintenance to the debtor: your spouse or ex-spouse’s decision to file for bankruptcy does not eliminate your ongoing obligation to pay support. The payments will continue to go to your spouse or ex-spouse, and will not be taken by the bankruptcy court or the bankruptcy trustee. If you need to modify or reduce your child support or spousal support, you will need to contact a family law attorney to assist you.

If you have any questions regarding bankruptcy or family law issues, please contact McGuire Gardner, PLLC by calling (480) 829-9081, or check us out on the web at www.mcguiregardner.com.

CAN I DISCHARGE DEBTS TO A FORMER SPOUSE IN BANKRUPTCY?

Tuesday, May 4th, 2010

CAN I DISCHARGE DEBTS TO A FORMER SPOUSE IN BANKRUPTCY?

Certain debts to a spouse or former spouse may be discharged in a bankruptcy.  However, the rules are quite complicated and you should carefully discuss the debts with a knowledgeable attorney.

Certain debts to a spouse or former spouse cannot be discharged in bankruptcy under the recent bankruptcy changes.  These include debts closely related to the support or maintenance of a spouse or children, including child support and spousal maintenance.

Other debts, usually debts to even out or equalize a property division in a divorce, may be dischargeable but only in a Chapter 13 Bankruptcy.

Occasionally these distinctions can be significantly blurred.  If payments to a former spouse are not clearly designated as either maintenance or equalization of property, the fight avoided in the divorce case may re-erupt in a non-dischargeability action in the subsequently filed bankruptcy case.

To speak with an attorney about your divorce or bankruptcy questions, please contact McGuire Gardner today.

For more information, or to contact an Arizona divorce lawyer, please check out our website at www.yourarizondivorcelawyer.com.

MARICOPA SUPERIOR COURT COMMISSIONER SEEKS OPINION OF McGUIRE GARDNER ATTORNEY’S REGARDING INTERPLAY BETWEEN DIVORCE LAWS AND BANKRUPTCY LAWS

Thursday, May 21st, 2009

After an article recently published in the May 2009 Family Law News, a news letter put out by the Family Law Section of the Arizona State Bar, an honorable commissioner in Maricopa County, Arizona, sent an email to McGuire Gardner requesting additional clarification. His email request, my response, and his reply were substantially as follows:

Dear Douglas and Pernell:

I very much enjoyed your article on bankruptcy issues in the May 2009 issue of Family Law News, from the State Bar of Arizona.

As sort of a follow-up to your article, I have a question that I wonder if I could pose to you.  I would appreciate your thoughts.

Arizona has the “one-action” rule, in which all issues are to be resolved within one decree of dissolution.  This has recently been the subject of opinions from the Court of Appeals.  When the divorce case comes up for trial or default hearing and a bankruptcy is proceeding, can the Superior Court proceed with any issues?

Some judicial officers in Maricopa County will not allow a case to proceed to dissolution of marriage if a bankruptcy is pending.  Some of their options are to have the case converted to a custody/paternity case and leave spousal maintenance and property unresolved.

It seems to me, however, that the Superior Court can proceed.  As your article points out, spousal maintenance, child support, custody and parenting time are not restricted by the automatic stay.  Since property division is not handled at the time of the entry of the decree, do the property issues proceed thereafter as a partition action?  Do they proceed back to Family Court as “reserved items”?

I look forward to your thoughts.

****

Dear Commissioner,

I appreciate your inquiry.  Below are my neutral thoughts on the matter, though I may need to make alternate arguments in certain cases, to fully represent my client.

Your question pertains to the interplay between the Federal Bankruptcy laws and our State Dissolution Statutes.

Arizona Statute, A.R.S. § 25-312 provides:  “The court shall enter a decree of dissolution of marriage if it finds each of the following:  . . . (4) To the extent it has jurisdiction to do so, the court has considered, approved and made provision for child custody, the support of any natural or adopted child common to the parties of the marriage entitled to support, the maintenance of either spouse and the disposition of property.”  A.R.S. § 25-313(5) has similar language pertaining to Decrees of Legal Separation.

Accordingly, a mandatory finding in order to grant a dissolution is that the Court has taken care of all issues relevant to the divorce.  There is, however, the limiting language: “To the extent it has jurisdiction to do so.”

In cases where Arizona does not have jurisdiction over the Respondent, Arizona can simply provide for the divorce.  The division of property would then be completed in a state with jurisdiction over the Respondent.  This often occurs when service is accomplished through publication.  Similarly, Arizona can only exercise jurisdiction over child support issues if certain jurisdictional requirements have been met.  A.R.S. § 25-1221.  It is possible for Arizona to have jurisdiction over the children and custody issues under the UCCJEA (A.R.S. § 25-1000 et seq.) and not have jurisdiction over child support.

Turning now to the Federal Bankruptcy Code, 11 USC § 362 sets forth the broad powers of the Automatic Stay.  The general rule is that the filing of a bankruptcy case “operates as a stay applicable to all entities, of (a)(1) the commencement or continuation . . . of a judicial . . . proceeding against the debtor . . . (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; . . .”

However, specifically exempted from the powers of the automatic stay, are certain support provisions, custody,  and the dissolution itself.  11 USC § 362(b) provides that the automatic stay “does not operate as a stay (2)(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 USC § 362(b)(2)(B-C) additionally allows for collection or withholding of income for support obligations.

The logic behind these federal exceptions to the otherwise powerful automatic stay lies in preventing abuse of bankruptcy where the filing of a bankruptcy would be utilized to prevent a spouse or dependent children from obtaining necessary financial support.

Ultimately, under Federal Bankruptcy Law, the state court divorce judge or commissioner has the legal right to proceed in spite of the bankruptcy in all aspects of a standard divorce, except for the distribution of assets and debts of the parties.

Synthesizing the limits of Federal Bankruptcy Law and the automatic stay, with the requirement of the Judge or Commissioner to make provisions for all issues in the divorce case “to the extent it has jurisdiction to do so,” it is my opinion that the court can proceed in granting the divorce, entering custody orders, child support orders, spousal maintenance orders, and all aspects of the divorce, except for the division of property and debts.  Because the state court lacks jurisdiction to do so, the issue of property and debts must be reserved until the bankruptcy is completed or until the Bankruptcy Court has lifted the automatic stay as to the division of the assets and debts.  If a divorce is granted before the expiration or lifting of the automatic stay, the remaining issues of the division of property and debts would be treated separately as a reserved issue, similar to a case in which the parties were divorced in another state but the property and debt issues were not provided for in that jurisdiction, or divorced when service was accomplished by publication.

Sincerely

Douglas C. Gardner J.D./M.B.A.

McGuire Gardner P.L.L.C.

***

Dear Mr. Gardner

Thank you for your response.  As the Judge says in the movie, My Cousin Vinny, “Counsel, that is a lucid, intelligent and well-thought out objection.”  In this case, your comments were not an objection but were lucid, intelligent and well-thought out!  And I am not “Overruling” your comments, as I agree with them 110%.

*   *   *

For more information about bankruptcy or family law issues, please visit our Website.

Phoenix Bankruptcy Attorney Comments On Failure of “Cram-Down” Bill.

Monday, May 4th, 2009

Last week the Senate voted down the bankruptcy “cram-down” bill recently approved by the House.  The bill was far short of the 60 votes needed, indicating that it is unlikely to be revived. For more information on bankrutpcy in Arizona, please visit our website at, www.mcguiregardner.com.

FLAGSTAFF ATTORNEY DISCUSSES TIMING ISSUES FOR A BANKRUPTCY AND A DIVORCE:

Monday, April 6th, 2009

 With increasing frequency, our clients must decide if they should pursue a bankruptcy before or after a divorce case.  In making this determination, there are several areas that you should discuss with your attorney.

 

            In relatively amicable cases, there are several advantages of completing the bankruptcy prior to filing for a dissolution.  Most bankruptcy attorneys will charge the same price to a single person filing a bankruptcy as to a married couple filing a bankruptcy.  Additionally, the couple would only pay a single filing fee to the court.  If the bankruptcy is completed prior to the dissolution proceeding, the elimination of the majority of the community debt (and possible reduction of assets) significantly simplifies the equitable division of assets and debts.

 

            In many cases, however, the urgency of the family law matter or the level of acrimony between the parties makes it unrealistic to ask the couple headed for a dissolution of marriage to work together gathering the necessary information to file a bankruptcy, while putting the dissolution of marriage on hold for several months.  The same issues that arise in dissolutions regarding the hoarding of documents and information or the hiding of assets and income may arise in the bankruptcy setting.  Lack of information or improper information regarding assets, debts, and income will result in the bankruptcy stalling or derailing, the case being dismissed, or the bankruptcy discharge being denied.  In high conflict cases, the family law practitioner may need to counsel the client to proceed first with the dissolution of marriage, with the understanding that the client may need to file for bankruptcy at the conclusion of the family law matter.  

 

            Occasionally, a party to a pending dissolution will file for bankruptcy, or a party in an ongoing bankruptcy will file for a dissolution of marriage.  The family law practitioner must proceed cautiously when both cases are pending.  Immediately upon filing a bankruptcy, an Automatic Stay is issued under federal bankruptcy law.  Similar to a Preliminary Injunction, the order is automatic and does not require a request to a judge or a judge’s signature to take effect.  The filing of a bankruptcy has the effect of placing all of the filer’s assets and debts into a “bankruptcy estate.” Without getting into the details, bankruptcy’s Automatic Stay prevents any person from commencing or continuing any action that would affect the bankruptcy estate.  This injunction prohibits the Superior Court from entering any temporary or permanent orders allocating assets or debts during the pendency of the bankruptcy, unless the stay is lifted by the bankruptcy court after a request has been filed.  The filing of a bankruptcy during a dissolution of marriage proceeding will therefore require hearings on property issues to be held in abeyance. 

 

A dissolution proceeding can be filed while a bankruptcy is pending, and the Petition may request the Superior Court to equitably divide community property.  The statutory language establishing the automatic stay 11 U.S.C. § 362 specifically allows for the commencement or continuance of a dissolution or paternity, or the establishment or modification of child support, spousal maintenance, custody and visitation issues.  However, the superior court is temporarily divested of jurisdiction to determine the division of property and debts included in the bankruptcy estate.  The division of assets and debts can only proceed once the automatic stay is lifted, either at the conclusion of the bankruptcy or by order of the bankruptcy court after a request has been filed.

 

            Tremendous problems can arise when the bankruptcy is filed shortly after the dissolution of marriage.  A party taking a greater part of the marital debts and a larger share of the marital assets may appear to be getting a fair and equitable division of the net assets and debts.  However, if the debts are then discharged in a subsequent bankruptcy, this party has obtained an inequitably larger share of the marital assets.  The inequity is worsened in cases where spousal maintenance is forever waived based upon a perceived distribution of assets and debts.  Furthermore, a payment owed to another party to equalize the division of assets and debts in a dissolution of marriage (“equalization payment”) can be discharged in a Chapter 13 bankruptcy.  When these issues arise, individuals should get a bankruptcy attorney involved immediately to assist in challenging such a scheme in the federal bankruptcy court.

 

            Ultimately each case must be individually assessed to determine the best timing for a dissolution of marriage and a related bankruptcy.  Please call us at 928-225-2597 to discuss your situation.  You can also visit our Website to find more information on divorce and bankruptcy issues.   

McGuire Gardner expands offices

Tuesday, March 24th, 2009

McGuire Gardner, PLLC, is pleased to announce that we have expanded our Flagstaff, Arizona office to include four attorneys, and we have opened our Tempe office full time. Our new address in Flagstaff is: 320 N. Leroux, Suite A, Flagstaff, AZ 86001. In Tempe you can find us at 2177 E. Warner Road, Suite 101, Tempe, AZ 85284. We will continue to focus our practice in all areas of bankruptcy law, family law, probate, loan modifications and commercial litigation.