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Bankruptcy and Family Law

Parties who are unable to keep up with their financial obligations may consider filing for bankruptcy. Chapter 7 bankruptcy involves liquidation of a party's assets to repay debts. Chapter 13 bankruptcy involves a payment plan with all collected funds subsequently distributed to creditors in order of their priority. A bankruptcy filing results in an automatic stay meaning the party filing for bankruptcy is protected from creditors seeking payment from them until the bankruptcy is resolved however, there are exceptions to this general rule. Specifically, the filing of a bankruptcy petition does not operate as a stay for any proceeding regarding the establishment or modification of an order for domestic support obligations, concerning child custody or visitation, or for the dissolution of a marriage (including decree with court order or property settlement agreement except to the extent that such proceeding seeks to determine the division of property that is property of the estate). Accordingly, a party may not seek to dismiss all their obligations in a family law matter by filing for bankruptcy.

Bankruptcy

As it relates to individuals considering bankruptcy the two most frequently used types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 provides for the liquidation of assets to satisfy debts owed. All nonexempt assets are gathered by a trustee and sold to pay off debts. Certain assets may be exempted from liquidation depending on federal or state laws. The individual filing for Chapter 7 bankruptcy will need to include a schedule of exempt property with their bankruptcy petition. Most Chapter 7 bankruptcies involve a situation where all the property of the individual is exempt or there are no assets. In that scenario, the trustee makes a report to the court that there are "no assets" for liquidation and no distribution is made to creditors. 

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