Not surprisingly, the financial strains that drive clients to our office also create problems in marriages. Clark and Washington regularly meets with clients who are separated from their spouses or who are actually going through a divorce.
Recently we met with a client who wanted and needed to file for bankruptcy, but who had just paid his divorce lawyer a $7,500 retainer. Despite the pressing need to file bankruptcy, we advised our client to wait until 90 days had passed from the date the check to his divorce lawyer cleared.
The basis for our advice arises from an area of bankruptcy law known as “preferences.” Simply stated, Section 547 of the Bankruptcy Code provides that the trustee may recover payments to non-insider creditors paid within 90 days prior to the date of filing when such payments are not in the “ordinary course of business” (for insiders – relatives, business relations, etc. the lookback period is 1 year). Section 541 of the Code provides that the unused retainer, sitting in the divorce lawyer’s trust account constitutes property of the bankruptcy estate.
In the case of our client, the $7,500 transfer would not be “ordinary course of business” unless there was a series of $7,500 payments. Our concern was that if we had filed a Chapter 7 on behalf of this client, the trustee would demand the $7,500 from the divorce lawyer. As you might imagine, this would make for a very unhappy divorce lawyer.
Preference issues arise in other situations, of course, meaning that you need to reveal to your lawyer any “out of the ordinary” payments to anyone made within the year prior to your projected filing date.
Filed under Bankruptcy and divorce, Common pre-bankruptcy mistakes by 
My ex owes $50,000.00 in back child support. He made a payment of about $260 in august and the child support office recieved info in December that he had filed bankruptcy. I am told that this will make it easier for him to pay his obligations. I guess my question(s) is/are when would i maybe get support from him and what can I do?
–R
Clark and Washington’s Answer: R, thanks for your question. First, recognize that under current law, bankruptcy does not allow a debtor to eliminate child support obligations. If your ex filed a Chapter 7, he would presumably have more money to allocate for child support if he was able to get rid of his credit card or other debt. If he filed a Chapter 13, then his on-going child support would be part of his budget and his Chapter 13 plan should have addressed how he was going to make up any arrearage.
You may want to find out a little more about your ex’s bankruptcy. Bankruptcy paperwork is a matter of public record and you should get a copy of his petition and associated documents. You don’t say where he filed bankruptcy – but bankruptcy paperwork is available through a national database called PACER.
At the end of the day, your ex’s obligation to pay you child support will not be eliminated or modified as a result of his bankruptcy filing.
Filed under Child support by
