The Impact of One Spouse’s Bankruptcy Filing on a Divorce Proceeding
June 26, 2017
One spouse’s bankruptcy filing may briefly slow down but will not likely stop an ongoing divorce case.
The “Automatic Stay” and Divorce
When you file a bankruptcy case, that filing immediately puts the “automatic stay” into effect. This can be one of the most immediate and important benefits of filing bankruptcy. The “automatic stay” stops most collection actions against you as of the moment you file.
One way the “automatic stay” stops creditors is by stopping lawsuits and other legal proceedings against you. In the words of the statute, it specifically stops “the commencement or continuation… of a judicial, administrative, or other action or proceeding against the debtor… .” See Section 362(a)(1) of the U.S. Bankruptcy Code. If a creditor had sued you before you filed bankruptcy, generally that lawsuit or legal proceeding would be immediately stopped.
So, what if that lawsuit or proceeding was divorce proceeding between you and your spouse? Would your bankruptcy filing and its “automatic stay” put an immediate stop to that divorce proceeding?
Mostly it would not. That’s because the “automatic stay” has a number of exceptions, a number of which pertain directly to divorce.
The Dissolution of the Marriage Itself
The Bankruptcy Code specifically says that the bankruptcy filing “does not operate as a stay… of the commencement or continuation of a civil action or proceeding… for the dissolution of marriage, except to the extent that such a proceeding seeks to determine the division of property… .” Section 362(b)(2)(A)(iv).
That is, the termination of the marriage itself is not affected by your bankruptcy filing. So filing bankruptcy will not stop or significantly slow down the ending of your marriage.
The Division of Property and Debts
But the part of the divorce proceeding about division of property IS “stayed” by your bankruptcy filing. And division of property includes the division of both assets and debts. This means that, until the bankruptcy court allows it, the divorce court can’t determine which spouse gets what assets and has to pay what debts.
This “stay” makes sense because you have two courts dealing with overlapping issues—the couple’s debts and assets. So the two courts would be both dealing with shifting facts if both cases moved ahead at the same time.
So, what if your spouse’s lawyer asks the bankruptcy court for permission to proceed with the divorce as to the marital property and debts? Whether the bankruptcy judge will give that permission will probably depend very much on the facts of the case. Often bankruptcy judges are quite willing to send divorce matters back to the divorce judge.
Other Divorce and Family Law Issues
There are other exceptions to the “automatic stay” which allow certain other aspects of divorce proceedings to continue:
the establishment of child and spousal support
child custody and visitation issues
the establishment of paternity
matters of domestic violence
most collection of child and spousal support, including the withholding or garnishment of a debtor’s paycheck or bank account; suspending a driver’s, occupational, professional, or recreational license to coerce payment; and intercepting a tax refund
See Section 362(b)(2) of the Bankruptcy Code.
A bankruptcy filing by one spouse does not stop most of their divorce proceeding from continuing. And the part that it does stop—the division of property—would often just result in a temporary delay.