Filing Bankruptcy While a Divorce Is Ongoing
With a Chapter 7 bankruptcy, the process moves rather quickly and bankruptcy closes generally within three to six months of filing. However, when you are in the middle of a divorce and decide to file bankruptcy, the automatic stay puts a stop to divorce proceedings.
The only legal actions not affected by an automatic stay are criminal proceedings and tax audits. However, alimony, child support and paternity actions can occur during a bankruptcy but cannot be paid through property considered to be part of the marital estate. Also, the other spouse’s attorney can enter a motion to lift the automatic stay. If the bankruptcy court grants the motion, the stay would no longer stop divorce actions from moving forward. Even without a motion to lift the stay, Chapter 7 filings resolve rather quickly and would only delay a divorce for a few months.
In contrast, Chapter 13 bankruptcy is a much longer process than a Chapter 7 and takes three to five years to complete. Couples may decide to divorce while a Chapter 13 is already ongoing. Or, during a divorce they may decide to file Chapter 13 bankruptcy. Either way, two different legal actions coincide. Title 11 Section 1325(a)(8) (amended by the Bankruptcy Abuse Prevention and Consumer Protection Act) requires individuals to show they are paying all domestic support obligations, such as alimony and child support, before the court can confirm a Chapter 13 bankruptcy plan.
Working together in bankruptcy
You and your spouse may agree on how to pay debts and incorporate it into your divorce settlement. If you do not make full payments in the Chapter 13 bankruptcy, the trustee files a motion to dismiss the case. If you and your spouse can't agree on how to divide up payments, you can each hire your own bankruptcy attorney and take whatever action that is best for you.
There may also be an option of converting the bankruptcy to a Chapter 7 bankruptcy.