Divorce and the Bankruptcy Automatic Stay

The automatic stay is a unique and powerful feature of bankruptcy cases and is a major benefit for individuals and businesses filing bankruptcy.  It is a legal rule that states that as soon as a bankruptcy case is filed, creditors cannot sue, garnish wages, or make any other collection attempts.  It is meant to give the debtor time to reorganize debt and to craft a plan for repayment and comes at a time that is often the pinnacle of a wave of demands that he or she cannot meet.

While this legal protection can be very meaningful and important to the debtor at the time of filing, there are some exceptions that do not fall under the purview of the automatic stay, such as those connected to family law and divorce proceedings.

Exceptions to the bankruptcy process allow the divorce court to dissolve the marriage, implement a custody schedule, and establish both child and spousal support. However, a bankruptcy stay will most likely prevent the distribution of any property that falls within the debtor’s bankruptcy estate.

However, the non-debtor spouse can, seek relief by filing a motion to terminate the bankruptcy stay in an attempt to collect equitable division of assets, alimony and child support.