What Happens if I File for Bankruptcy During my Divorce?

You may be worried that your financial situation will affect your divorce as well, and it will in a few ways. Decisions about establishing child custody or support is usually unaffected by filing for bankruptcy during divorce proceedings. However, decisions about division of property will be halted.

All your property and assets become property of your bankruptcy estate when you file. All attempts to control your property or take it into possession are then halted by an automatic stay. This means that it cannot be handled or divided during your divorce proceedings. Whether you file for Chapter 7 or Chapter 13 bankruptcy will better determine how your divorce will be affected.

Filing for Chapter 7 Bankruptcy

Filing for bankruptcy can cause further complications in your divorce proceedings. A bankruptcy trustee will be appointed to you regardless if you file for seven or thirteen. In the case you file for Chapter 7, the trustee has power to sell your property to pay any creditors. The trustee will have to decide which assets are property of your bankruptcy estate and if proceeds from their sale can be used to pay creditors.

Joint property opened with your ex may even be entirely sold if you cannot exempt your interest value in the property. If the ex’s interest in the property is determined to be not included in your bankruptcy estate, then the trustee would pay the sum of the value of their interest to them after the sale of the property.

Filing for Chapter 13 Bankruptcy

A trustee is also assigned to your estate when you file for Chapter 13 bankruptcy. However, they do not sell property to creditors. In fact, a trustee must determine the value of your property and interests in order to determine the effects on your repayment plan to creditors. The amount of non-exempt property you have will affect how much you must pay.

A Chapter 13 repayment plan may take three to five years to finish paying off. Usually, you and your ex will have to get permission from bankruptcy court to finish dividing property in divorce proceedings.

Custody and Domestic Support Affected by Automatic Stay

Automatic stay may stop the process of division of property, but it won’t affect court decisions of child custody and support. Filing for bankruptcy will not affect the process of determination of who maintains custody and who pays child support; it will not stop those proceeding like it will prohibit division of property and assets.

Consult an Attorney

Bankruptcy and family law overlap in a number of ways. If you are unsure how filing for bankruptcy will affect your divorce proceedings, consult a divorce lawyer Austin, TX residents trust. They can help guide you through any complications and will provide you with knowledge of any possible issues you may face along the way.

 


 

Thank you to our friends and contributors at The Law Office of Ryan S. Dougay for their insight into divorce law.

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