Effects Of Bankruptcy On Marital Dissolution Proceedings

Sometimes during the course of a marital dissolution proceeding it becomes necessary for other legal proceedings to be initiated. One such proceeding that may arise is Bankruptcy. Unlike marital dissolution proceedings which are governed by state law, Bankruptcy is federally regulated and there are immediate effects the filing of a bankruptcy petition can have on a marital dissolution proceeding.

First, an automatic stay of all actions against the debtor takes effect upon the filing of a bankruptcy action. A violation of the stay is punishable as contempt of court, subject to significant sanctions for a knowing and willful violation. However, there are several exceptions to the automatic stay that relate to basic family law matters including but not limited to establishing paternity, filing for a domestic violence restraining order or seeking or enforcing support orders.

The next consideration is identifying, characterizing and dividing the property of the estate. Property of the estate is created upon filing for bankruptcy and includes all legal and equitable interest in property of the debtor. The creation of the estate depends in part upon the timing of the filing of the bankruptcy as it relates to the marital dissolution proceeding. In other words, did the parties file jointly for the bankruptcy prior to filing to dissolve the marriage (mid-bankruptcy dissolution) or did one party file for bankruptcy after the commencement of the marital dissolution but before final judgment (mid-dissolution bankruptcy) or did one party file for bankruptcy post marital dissolution (post dissolution bankruptcy).  The timing of filing a bankruptcy may determine what property flows into the bankruptcy case including community property even if there is a pending marital dissolution. Therefore, careful consideration should be taken before taking any legal action.

If you are considering bankruptcy and are going through a marital dissolution it is important you are advised of your rights and the effect each action may have on the outcome of your case.