Criminal or Civil Contempt in Enforcement of Spousal Support and Violation of Bankruptcy Stay: Is there a Difference??? In re Small, 5th Circuit 8/16/2012:

In re Small, no 11-40888 (5th circuit, 8/16/2012)

In a recent case coming out of the 5th circuit, In re Small examined the intricacy of a enforcement action for spousal support in the family district court and the automatic stay pursuant the bankruptcy code.

In re Small stands for the proposition that (1) enforcement of spousal maintenance did not fall within the exception to the violation stay where the enforcing party failed to adhere to the bankruptcy court’s ruling to identify the Debtor's property that was not part of the bankruptcy estate for payment on the spousal maintenance and (2) although a criminal contempt may be subject to the exception to the automatic stay, where the nature of the criminal contempt was used as an inducement for payment of spousal support, such criminal contempt fell outside the exception of the automatic stay.

The facts of this case is simple and ordinary. The Debtor’s ex spouse filed for divorce and was granted temporary spousal support. Subsequently, after a jury returned its findings, but prior to having the final order entered by the court regarding division of community property and value thereof, Debtor filed for a chapter 7 bankruptcy. Debtor’s ex spouse filed a relief of stay with the bankruptcy court to have the divorce proceed in state court. After a hearing, the bankruptcy court modified the stay to (1) allow the state court to enter the jury’s findings (2) enter a divorce between the parties and (3) to allocate the community estate. Additionally, the court modified the stay to allow the state court to include this specified language :

(ii) to determine the amount of any future support…so long as such support is paid from the future earnings of the debtor and not from the property of the bankruptcy estate; [and] (iii) to determine the amount of any monetary damage claim held by [Ex-spouse] against [Debtor].

Subsequent the divorce, the Ex-spouse filed an enforcement of the temporary spousal support order. The trial court sentenced and held Debtor in civil contempt resulting in imprisonment, but granted probation for 1 year on condition Debtor paid the approximately $124,000.00 is past due support, attorneys’ fees, and continued spousal support. Debtor filed a mandamus with the Texas court of appeals on the grounds that the enforcement order was in violation of the bankruptcy automatic stay. The Court of Appeals agreed. The trial court amended its order to grant the enforcement only on “criminal contempt” and a money judgment.

In this case, Debtor filed an adversary pro se, against his ex spouse and attorney for violation of stay. The bankruptcy court found that the Ex-spouse did violate the stay where it ‘knew’ of the stay and acted ‘intentionally’ in violating it. The District court affirmed and the Ex spouse filed an appeal to the 5th circuit.

The Ex-spouse, among other arguments, argued that the criminal contempt ordered by the state court’s pertaining to the enforcement did not violate the automatic stay under Section 362(b)(1). In reaching its decision, the 5th circuit looked to the substance of the criminal contempt rather than merely the title of what was being sought. Specifically, the 5th Court looked at the supporting evidence to find that the incarceration sought in the criminal contempt order was used as a means of inducing payment of the spousal support. The 5th Circuit reached this finding on the grounds that the District Court gave the Debtor an opportunity to come up with the money prior to the incarceration.

Further, the Ex-spouse argued that the exception to the automatic stay applied pursuant Section 362(b)(2). The 5th circuit agreed with the bankruptcy court that the enforcement sought was in violation of the stay due to the non-compliance with the bankruptcy court’s modified order. Specifically, the bankruptcy court required that a finding be made as to “whether there was property that was not property of the estate from which to make the payment.” The Ex-spouse failed to make such attempt nor get such ruling.  Thus; the enforcement fell outside the exception.

link: http://volo.abi.org/mcmaster-v-small-in-re-small/opinion

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