During your divorce proceedings, before the final decree has been entered by the family court, you learn that your spouse has filed a bankruptcy case. What does this mean for your case and for you personally?
What is Bankruptcy?
Using federal bankruptcy law, an individual or a business can limit or eliminate liability on certain debts and or reorganize other debts. Individuals will normally file either under Chapter 7 or Chapter 13 of the bankruptcy code. Chapter 7, also known as straight bankruptcy, ordinarily takes four to six months to complete. In Chapter 13, the filer, also called the “debtor,” proposes a payment plan to repay a portion or all of the debt. The repayment plan may last as few as three years or as long as five years and may include provisions for the payment of past due amounts owed on house or car loans, plus payment on credit cards, medical debt, and other types of unsecured debt.
How Bankruptcy’s Automatic Stay Can Affect Your Divorce Case
When the debtor spouse files a bankruptcy case in federal court while a marriage dissolution case is pending in state court, the family court will often bring the state proceeding to a halt because of an injunction in bankruptcy law called the automatic stay. The automatic stay is designed to protect the debtor and the debtor’s property by prohibiting most types of collection activity by creditors, including phone calls and letters, all the way up to filing or continuing a lawsuit.
When a bankruptcy case is filed, almost all of a debtor’s property becomes part of what is known as the bankruptcy estate and is under the jurisdiction of the federal bankruptcy court. A marriage dissolution case is not one of the collection actions contemplated by the automatic stay, but it often involves a distribution of marital property. Although federal bankruptcy law does not technically require that the marriage dissolution portion of the case be halted, many state court judges will ask the parties to seek what is often called a “comfort” order from the bankruptcy court. In this case, the “comfort” order will allow the state court to proceed with determination of the marriage dissolution, but the bankruptcy court will often retain authority to make the final decision with respect to the division of property that is included in the bankruptcy estate.
Usually, the comfort order and the approval of the property division are entered as a matter of course, with the bankruptcy court taking little or no interest in the outcomes. But the processes take time. Without the guidance of the team of knowledgeable and experienced divorce attorneys, your case could easily experience an unnecessary delay of weeks or months.
Can Your Spouse’s Bankruptcy Affect Your RIghts?
If your spouse chooses to file bankruptcy before, during, or after your divorce case, your other rights will likely be affected, including whether you will be solely responsible for any joint debt after the bankruptcy. Your assets and property division can likewise be impacted by your spouse’s bankruptcy filing.
At Glasgow & Olsson we understand the complexities of state family courts and federal bankruptcy system. If either you or your spouse has a divorce or child custody issue, take advantage of our years of experience working with clients to achieve their goals. Contact us today. We can help you design a plan that will serve your best interests and protect your rights.