What happens the moment bankruptcy is filed?
Mayur Amin, J.D.
Unless exempted by law, the filing of a bankruptcy petition will impose an automatic stay on any legal action against a debtor and his/her property. For purposes of this article, we will assume that the “debtor” filing for bankruptcy is going to be your spouse or ex-spouse. What this really means is that when a debtor files for bankruptcy, it has the potential to stay or stop family law proceedings; irrespective of whether a divorce decree has been signed.
When and if the bankruptcy stay applies, there are at least three things that one should understand about it. First, the stay abates any pending divorce proceeding until the stay is lifted or modified. Second, the stay deprives the divorce court of personal jurisdiction over the debtor and his or her property. And third, as of the time of the stay, all of the debtor’s property essentially comes under the control of the bankruptcy court and its trustee. In other words, the divorce court will no longer have jurisdiction over the debtor’s property until the bankruptcy stay is lifted or modified
What types of family law proceedings are affected by the bankruptcy’s automatic stay?
Typically, two types of family law proceedings are potentially impacted by a bankruptcy stay.
- The first is a proceeding to divide a couple’s marital property. A bankruptcy stay of this type of proceeding is often only temporary. This is because bankruptcy courts usually modify the stay to allow family law judges to go forward with the business of dividing the couple’s property.
- The second is a proceeding to collect domestic support obligations from a debtor who files a Chapter 13 bankruptcy. So, for example, if you are trying to collect alimony or child support from a spouse or ex-spouse who filed this type of bankruptcy, you will need the bankruptcy judge’s permission before going forward. This is because, under a Chapter 13 repayment plan, all the debtor’s post-petition assets become property of the bankruptcy estate. Under this scenario, the stay can last three to five years depending on the repayment plan approved by the bankruptcy court.
There are eleven types of family law proceedings exempted from a bankruptcy’s automatic stay.
If you are concerned about your spouse’s or ex-spouse’s bankruptcy throwing a monkey wrench in your divorce case, the good news is that eleven out of thirteen family law type proceedings discussed here are actually exempt from the bankruptcy’s automatic stay. A family law proceeding or action is exempted from the stay if it is:
- to determine paternity;
- to obtain or modify alimony or child support;
- to seek custody or visitation orders;
- to request dissolution of the marriage;
- to prevent domestic violence;
- to collect child support or alimony from a debtor who files a Chapter 7 liquidation type bankruptcy;
- to seek a wage garnishment order for the purpose of collecting domestic support obligations;
- to suspend professional, occupational, recreational or driver’s licenses for the purpose of enforcing domestic support obligations;
- to communicate past due support obligations to a consumer reporting agency;
- to permit the IRS to intercept a debtor’s tax refund to pay for past due support; and
- to enforce medical obligations in the form of support
DISCLAIMER: This blog content is for educational purposes only. It does not constitute legal advice. Do not act or fail to act based on this information alone. For actual legal advice, please speak to a lawyer in your jurisdiction about your specific fact situation.
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JUSTLAW Attorney Bio
Mr. Amin graduated from the University of Texas School of Law in 1994. He has over twenty years of civil litigation, trial, and appellate law experience. This experience includes having tried over fifty civil jury trials as first-chair and the filing of appeals with both the Supreme Court of Texas and the United States Supreme Court. Mr. Amin also has several years of work experience handling a variety of personal, business, and transactional law matters. Prior to law school, Mr. Amin was a certified public accountant and earned his Bachelor of Science with high distinction from Indiana University’s School of Business.
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