The bankruptcy estate can be created voluntarily or involuntarily, and consists of all the property of the bankrupt spouse. This includes property in the State of Michigan and outside the state. While a bankruptcy action is ongoing, the Michigan family court's ability to take action against property is automatically halted and paused; this is called a "stay". For bankruptcy purposes, property is defined as interests in property, proceeds of estate property, funds contributed to certain educational plans, undivided co-ownership interests, and inheritances, property settlements and life insurance policies if the bankrupt party is entitled to their receipt within 180 days of the bankruptcy petition.
Either party of a Michigan divorce may file a motion with the bankruptcy court to seek abstention of the bankruptcy court and/or relief from the automatic stay. If the bankruptcy court does not agree, and the Michigan divorce court takes action, those actions could be void.
There are certain things that are exempted from a bankruptcy proceeding. The following is not meant to be an exhaustive list; please prefer to the U.S. Bankruptcy code for further detail.
- Home value up to a certain value
- Motor vehicle up to a certain value
- Household furnishing up to a certain value
- Jewelry up to a certain value
- Tools used for your work trade up to a certain value
- Certain life insurance contracts
- Right to receive social security, veterans, disability, alimony or support and payment under certain financial instruments like bonds, stock etc
- Right to receive restitution as a victim of a crime, wrongful death and personal injury lawsuits
The State of Michigan had additional exempted property for a Michigan divorce.
If my spouse files Bankruptcy in a Michigan case, can he/she avoid paying child and spousal support?
No, the U.S. Bankruptcy Code provides that certain debts/obligations are not dischargeable in bankruptcy court. This means that a Michigan court will be able to order support payments to the other spouse.
One of the obligations that are not dis-chargeable are domestic support obligations. A domestic support obligation in Michigan would be alimony, maintenance or support, and this support can be payable to a spouse, former spouse or a child. One of the most important things about a domestic support obligation it is is granted priority of payment, which means it's paid before the creditors of the spouse that filed for bankruptcy. These domestic support obligations are subject to modification in a Michigan.