If I file for bankruptcy, will it affect my pending divorce case?
Learn how filing for Chapter 7 or Chapter 13 bankruptcy will impact your ongoing divorce case.
My spouse and I just filed for divorce. We are in the process of dividing our property and trying to resolve issues regarding custody of our children and child support. Unfortunately, I can no longer afford to pay my bills and want to file for bankruptcy. If I file for bankruptcy, will it affect my pending divorce case?
If you have a pending divorce case, filing for bankruptcy will not affect actions to establish custody or child support. But it will stop the ongoing divorce proceedings related to division of property. Read on to learn more about how filing for bankruptcy can affect your pending divorce.
For more information on what happens if you file for bankruptcy during your divorce, see our topic area on Divorce & Bankruptcy.
Bankruptcy Creates an Automatic Stay on Property Division
When you file for bankruptcy, almost all of your property becomes property of your bankruptcy estate. In addition, an automatic stay goes into effect that prohibits all actions to obtain or exercise control over property of the bankruptcy estate. This includes proceedings to divide property of the estate during divorce. (To learn more, see Bankruptcy’s Automatic Stay.)
In most cases, how your bankruptcy will affect your divorce depends on whether you file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
If you file for Chapter 7 or Chapter 13 bankruptcy, the court will appoint a bankruptcy trustee to administer your case. In Chapter 7 bankruptcy, the trustee has the power to sell your nonexempt property to pay your creditors. This means that if you file for bankruptcy during your divorce, the trustee will have to determine which of your assets are property of the estate and whether they should be sold to pay your creditors.
If you own joint property with your ex, the trustee might even be able to sell the entire asset if you can’t exempt the value of your interest in the property. If the trustee determines that your ex-spouse’s interest in the property is not part of your bankruptcy estate, the trustee would pay your ex the value of his or her interest from the sale proceeds. But as you can see, filing for bankruptcy during a divorce can potentially cause both delays and complications in your divorce case.
For more information on how your property is treated in Chapter 7 bankruptcy, see Your Property in Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy
The trustee in Chapter 13 bankruptcy doesn’t sell your property to pay your creditors. But the amount of nonexempt property you own affects how much you must pay unsecured creditors through your repayment plan. This means that the trustee will still need to determine the value of your property interests.
In addition, Chapter 13 repayment plans take three to five years to complete. For this reason, you or your ex will typically need to obtain permission from the bankruptcy court to continue dividing your property in the divorce.
For more information on how Chapter 13 bankruptcy works, see our Chapter 13 Bankruptcy topic.
Automatic Stay Exception for Custody and Domestic Support Proceedings
While the automatic stay can stop the division of property in a divorce, it doesn’t apply to actions to establish custody or child support. If you are in the process of determining who gets custody of your children or whether either spouse will have to pay child support, filing for bankruptcy will not prohibit those proceedings from moving forward.
Talk to a Bankruptcy Attorney
There are many areas where bankruptcy law and family law can overlap. In some circumstances, filing for bankruptcy during your divorce can cause unnecessary delays or complications. If you have an ongoing divorce case, talk to a knowledgeable bankruptcy attorney in your area to learn about how filing for bankruptcy might affect your pending divorce.