The Effect of Bankruptcy on a Divorce
The Effect of Bankruptcy on a Divorce
At some point during a divorce proceeding, one or both parties might realize their financial situation requires that one or both of them file for bankruptcy. This might occur at the beginning of a dissolution proceeding when the parties are required to provide a complete list of all assets, debts, income, and expenses, or sometime down the road when a party’s financial situation for whatever reason has become more dire.
Should a party file for bankruptcy during the course of a dissolution proceeding, the divorce litigation will likely be affected. Community property will likely be included in the bankruptcy estate. An automatic stay kicks in in regard to any proceeding seeking to divide that property[i]—meaning, the family court will not be able to make orders regarding the community property, including the division of assets.
However, not every part of the dissolution proceeding will be affected. For example, the Bankruptcy Code makes all support obligations non-dischargeable.[ii] Thus, a party cannot dodge support obligations by filing for bankruptcy. Similarly, the family court will still have authority to issue orders relating to child support, spousal support, and attorney fees.
Dissolution and bankruptcy proceedings can be complex on their own, and it is always a good idea to consult with an attorney. However, because of the additional complexities that can arise when both dissolution and bankruptcy proceedings are unfolding concurrently, litigants are likely even more in need of professional advice in order to best protect their interests.
[i] 11 U.S. Code § 362 (b) (2) (A) (iv).
[ii] 11 U.S. Code § 523(a)(5).