4 Facts Your Divorce Attorney Should know about Bankruptcy? Fact #1: The Automatic Stay

Immediately after a Bankruptcy Petition is filed, the court enters an Automatic Stay Order prohibiting the creditors from taking or continuing any collection or legal action against the debtor. The automatic stay is a useful tool in temporarily stopping foreclosure proceedings brought by mortgage holder(s), as well as collection efforts, collection calls and lawsuits filed by creditors.

The Automatic Stay also puts an immediate stop to some portions of a pending divorce, modification, or contempt proceedings. Specifically any actions relating to debts or the division of assets cannot be ruled on by the Divorce Court while the bankruptcy is pending, unless the Bankruptcy Court is first asked for permission by filing a Motion for Relief from the Automatic Stay. Even issues relating to the collection of child support or alimony may be stayed or considered under the jurisdiction of the Bankruptcy Court while a petition is pending.

The penalties for violating the Automatic Stay can be significant, including fines and attorneys fees and it is therefore very important to seek Relief from the Automatic Stay before attempting to move forward with any issues that may be in the jurisdiction of the bankruptcy court. In order to avoid costly mistakes for divorce clients, we encourage divorce practitioners to consult with bankruptcy counsel when there is the potential that one party in the divorce will file for bankruptcy.

Of course, issues relating to custody are not affected by the Automatic Stay and can continue, though this may require a bifurcation of the probate matter.

Click here to read the other 3 Facts:
Fact #4: Jurisdiction over your Assets
Fact #3: Jurisdiction over your Debts
Fact #2: Domestic Support Obligations.