The Effect of One Spouse’s Bankruptcy Filing on a Pending Divorce Case

If one spouse files bankruptcy while a divorce is pending, that filing does not stop most of that divorce case.

 

When a spouse files a bankruptcy case, that act itself immediately imposes the “automatic stay.” That stops all collection actions against that spouse. But it also stops “the commencement or continuation… of a judicial, administrative, or other action or proceeding against the debtor…  .” Section 362(a)(1) of the Bankruptcy Code. That makes it sound like the bankruptcy filing and its automatic stay would put a stop to a pending lawsuit to dissolve the marriage.

But the automatic stay has a series of exceptions, some of which pertain directly to divorce.

The Dissolution of the Marriage Itself

The Bankruptcy Code explicitly 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).

In other words, you can get divorced—your marriage dissolved—but that divorce can’t resolve the division of property. And “property” includes both assets and debts (which are, in effect, negative property). The divorce judgment can end the marriage but can’t say which spouse gets what assets and has to pay what debts.

That it, the divorce judgment can’t get into those asset issues UNLESS the bankruptcy court gives its OK first. That depends on the facts of the case, and so is beyond the scope of this blog. In general, bankruptcy judges are happy to send divorce matters back to the divorce judge, who likely knows much more about state divorce law and procedure.

Other Divorce and Family Law Issues

Beyond this property division issue, most other aspects of a divorce proceeding can continue without even a pause because they are excluded from the automatic stay. Of probably the greatest practical importance, the divorce court can continue determining and ordering child and spousal support. Same thing with child custody and visitation issues. Potentially related to these, paternity can also be established.

Understandably, the divorce court is not prevented from dealing with matters of domestic violence.

And lastly, most collection of child and spousal support is NOT stopped by a bankruptcy filing. Specifically permitted are 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 to pay.

So…

A bankruptcy filing by one of the spouses—usually the one who did not file the divorce petition—does not stop most of the divorce case from continuing. And the part that it does stop—the division of property—there’s a good chance that would just be a temporary delay. 

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