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How Will My Divorce Be Affected By My Spouse’s Bankruptcy?

How Will My Spouse’s Bankruptcy Affect My Divorce?

If your spouse files for bankruptcy in the middle of your divorce case, then your divorce case is usually “stayed” or temporarily stopped by the bankruptcy court. The bankruptcy court does this because the assets and joint marital property then become part of the bankruptcy proceeding. This means that once a bankruptcy is filed it will temporarily prevent the property from being divided during the divorce. Therefore the bankruptcy will stop all collection activities and the disposition of all property including the bankruptcy estate despite previous court jurisdiction in family court / superior court system. However, there are legal strategies that an attorney can use to make it possible to continue with aspects of the divorce case and allow for the division of assets and support to be paid as necessary.

Can a Bankruptcy Extend the Length of My Divorce?

If a bankruptcy chapter 7 or 13 is filed, this can impact your divorce by extending it out unnecessarily sometimes for years. However, on a practical basis, the filing of a bankruptcy by a spouse usually only delays a divorce a few months. Even in a chapter 7 bankruptcy, the bankruptcy trustee may be permitted by the court to allow some or all assets to be equitably divided after making a determination of the abandoned assets (assets the bankruptcy trustee does not want to liquidate and has no interest in). If a bankruptcy is filed and no motion is filed in the bankruptcy case, a divorce proceeding may remain inactive for a significant period of time and prevent delay the finalization of the divorce for several months or more. Although a divorce may still not be finalized while a spouse’s bankruptcy case is still open, if the proper motions are filed family law court may still make temporary decisions on other aspects of the divorce case such as custody, child support, alimony and parenting time. However, the divorce court would usually avoid making temporary or final determinations regarding marital or non-marital assets.

How to Continue a Divorce Case with Bankruptcy

If your divorce has been temporarily stayed due to a filing for bankruptcy by either party, then it is still possible to finalize your divorce. Once a filing for bankruptcy is complete you may file a motion for “relief from automatic stay.” This motion will may allow for the bankruptcy court to revert the jurisdiction back to the state / superior court so that marital property can be equitably divided. This would usually only happen if:

  • the marital (or non-marital) property is not significant in value; and/or
  • the marital property (or non-marital) does not have any significant equity in it due to liens, mortgage(s), etc.
  • the spouse is proposes a final divorce settlement agreement that sets forth no claim on the assets affected by the bankruptcy.

Not filing a “motion to lift stay” in the bankruptcy course may leave the divorce case in limbo until the bankruptcy court finalizes its case. However, if a “motion to lift stay” is granted, the trustee will no longer have any concern how the divorce court decides to equitably divide the marital assets. In other words, once the bankruptcy court grants the “relief from bankruptcy stay” the divorce court will then be permitted to equitably divide the marital property and finalize the divorce.

Is it Difficult to get a Relief from the Bankruptcy Automatic Stay?

No, it is not usually too difficult to obtain a relief from automatic stay. Bankruptcy does occur as part of many divorce cases and therefore relief motions are routinely granted so long as significant assets are not involved. One does not need a special circumstance or emergency situation to obtain a relief of the bankruptcy stay to resume the divorce proceedings. Fortunately, a relief from the bankruptcy automatic stay will generally be granted shortly after a request is filed, and the bankruptcy court will then allow for the divorce to be finalized in the state / superior court system.

Reality Check on Divorce and Bankruptcy

In the vast majority of cases, if one of the spouses files bankruptcy during the case, it will only serve as a temporary delay in the overall case (three to six months).  However, if there are substantial assets involved in the bankruptcy case, it may delay the process for years unless a “relief from bankruptcy stay” is filed and granted.  Importantly, a divorce can be granted with no determination regarding assets, reserving the asset issues to be decided at a later time.  Bankruptcy is not a legal process that can be used to avoid paying court ordered child support or alimony.  As a matter of fact, the bankruptcy court give preferential and priority status to spouses that need child support and/or alimony.  However, someone that is filing bankruptcy may very well not be viewed by the court as not likely having enough income to pay large monthly amounts of support.  However, this is not the result of the bankruptcy case; the bankruptcy is merely a validation and reflection of the financial position of the person filing.

If you or your spouse are filing bankruptcy and you need to know how it will affect your divorce case, call us at 770-609-1247 to discuss your situation with one of our experienced divorce and bankruptcy attorneys.

Content Revised: 2016-01-28

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