Financial troubles can put a strain on any marriage, and sometimes, those troubles can lead to bankruptcy and divorce. Understanding how these two processes interact is crucial for couples going through both simultaneously.

Automatic Stay in Bankruptcy

When one or both spouses file for bankruptcy, an automatic stay goes into effect. This stay prevents creditors from collecting debts or taking legal action against the debtor. The stay also applies to divorce proceedings, meaning that the division of assets and debts cannot be finalized until the bankruptcy is resolved.

If a couple is in the middle of a divorce when one spouse files for bankruptcy, the divorce proceedings will be put on hold until the bankruptcy is completed. This is due to the fact that the bankruptcy court has jurisdiction over all of the debtor’s assets, including those that are subject to division in the divorce.

In some cases, the bankruptcy court may allow the divorce to proceed if it can be done without affecting the creditors. For example, if the couple has already agreed on a division of assets and debts, the bankruptcy court may approve the divorce decree. However, if the couple has not yet reached an agreement, the divorce will likely be put on hold until the bankruptcy is over.

Impact on Asset and Debt Division

One of the most important aspects of divorce is the division of assets and debts. Since Texas is a community property state, all assets and debts acquired during the marriage are considered to be community property and are ordinarily divided equally between the spouses.

However, if one or both spouses file for bankruptcy, the division of assets and debts may be more complex. This is because the bankruptcy court will determine which assets and debts are part of the bankruptcy estate. The bankruptcy estate consists of the community property and the debtor’s separate property. The non-exempt property can be used to pay off creditors.

Any assets or debts that are part of the bankruptcy estate cannot be divided in the divorce. This means that the bankruptcy court will determine how these assets and debts will be dealt with, and the divorce court may not be able to override the bankruptcy court’s decision.

Impact on Alimony and Child Support

Alimony and child support are not dischargeable in bankruptcy. In other words, even if one or both spouses file for bankruptcy, they will still be obligated to pay alimony and child support.

However, the bankruptcy court may be able to modify the amount of alimony or child support if the debtor’s financial situation has changed significantly as a result of the bankruptcy.

Seeking Legal Guidance

Navigating the intersection of bankruptcy and divorce can be complex and challenging. It is important to seek legal guidance from an experienced attorney like Gregg Lundberg who can help you understand your rights and options. An attorney can also help you coordinate the two proceedings and ensure that your interests are protected.

Here are some additional tips for couples going through bankruptcy and divorce in Texas:

  • File for bankruptcy before initiating divorce proceedings. This can help streamline the process and avoid potential conflicts between the two courts.
  • Communicate openly and honestly with your spouse about your financial situation. This can help prevent surprises and make it easier to reach an agreement on the division of assets and debts.
  • Seek professional mediation or arbitration if you are unable to reach an agreement on your own. These alternative dispute resolution methods can help you avoid going to court.
  • Consider using a collaborative divorce process, which is a less adversarial approach to divorce. This process can help reduce conflict and stress, and it can also be more cost-effective.

Divorce and bankruptcy can be difficult experiences, but they do not have to be insurmountable. By seeking legal guidance and taking the right steps, you can protect your rights and interests and move on with your life.

Contact us here at Lundberg Law if you have any questions or would like representation for your bankruptcy and divorce.

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