Bankruptcy During Divorce: How the Automatic Stay Can Impact Family Court Proceedings

Divorce and bankruptcy each bring emotional, legal, and financial strain. When they overlap, especially here in Los Angeles, it becomes even more crucial to understand how the automatic stay triggered by bankruptcy can affect family court proceedings. Knowing how this stay operates can help protect your rights and preserve your future.

What Is the Automatic Stay?

Once a bankruptcy petition is filed, federal law, under Section 362 of the Bankruptcy Code, automatically places an injunction, known as the automatic stay, on most creditor actions. This means foreclosure, repossession, wage garnishment, and collection efforts must stop immediately, giving debtors breathing room to reorganize or discharge debts.

How the Automatic Stay Impacts Divorce Proceedings

The automatic stay generally freezes actions involving the debtor’s property and debts. In a divorce context, this may prevent the family court from proceeding with property division, such as the marital home, vehicles, or retirement accounts, until the bankruptcy court resolves those matters.

However, not all aspects of a divorce fall under the automatic stay. California and federal law permit family courts to continue handling child custody, child support, and spousal support, as the stay makes exceptions for these essential family obligations.

The length of the stay may vary depending on the type of bankruptcy filed. A Chapter 7 case may only pause property division briefly, while a Chapter 13 repayment plan could extend the process for much longer. Choosing which chapter to file requires careful evaluation, and that choice will be explored in detail separately.

Protecting Your Rights When Divorce and Bankruptcy Intersect

Facing both divorce and bankruptcy demands a thoughtful strategy and timing. In some cases, filing for bankruptcy before beginning divorce proceedings may streamline the resolution of joint debts. In other situations, finalizing the divorce first could be more advantageous, especially if one spouse wishes to protect specific property or income.

Family law and bankruptcy courts must coordinate effectively. If family court needs to proceed with dividing property that is part of the bankruptcy estate, either the filing party or the non-filing spouse can file a Motion for Relief from the Automatic Stay in the bankruptcy court to allow that portion of the divorce to move forward.

The Emotional and Financial Toll

Navigating both divorce and bankruptcy at the same time is emotionally overwhelming. While the automatic stay offers relief from creditor pressure, it can also contribute to extended uncertainty about asset division and the overall trajectory of the case.

Understanding what will proceed (like support and custody) and what may pause (property division) helps reduce stress. With compassionate and knowledgeable legal guidance, you can move through these overlapping processes with greater clarity and confidence.

Contact Wadhwani & Shanfeld

If you are dealing with both divorce and bankruptcy, you need guidance from attorneys who know how to handle both areas of law. The experienced Los Angeles bankruptcy divorce lawyers at Wadhwani & Shanfeld have helped countless clients manage the intersection of family court and bankruptcy proceedings.

We can explain how the automatic stay may affect your case, protect your rights, and help you take the next steps toward financial and personal stability. Contact us today for a confidential consultation.

Sources:

cacb.uscourts.gov/faq/automatic-stay-what-it-and-does-it-protect-debtor-all-creditors\

law.cornell.edu/uscode/text/11/362