Filing for bankruptcy can be an incredibly stressful process. In addition, a divorce can be a stressful and emotional upheaval. If these two things occur at the same time, you may feel completely overwhelmed. These feelings are normal. It is important to know that filing for bankruptcy during a divorce is something that occurs, and you are not alone. That being said, bankruptcy can make a divorce much more complicated, so it is important to know what to do in the event that your spouse files for bankruptcy during your divorce, and the ways in which you may be affected. Read on to learn more about bankruptcy during a New Jersey divorce.
Why Bankruptcy Complicates Divorce Proceedings
Though filing for bankruptcy may seem like an entirely separate process from your divorce due to the fact that bankruptcy is handled by the federal courts, while a Morris County divorce proceeds through the Morris County Courthouse under the Superior Court’s Family Division.
However, despite the fact that these are two separate proceedings, they may overlap and ultimately result in serious legal complications.
When you file for divorce, the primary focus will remain on:
- Equitable distribution of marital assets
- Alimony and child support obligations
- Full financial disclosure
Bankruptcy, on the other hand, centers on:
- The discharge of eligible debts
- Protecting creditors
- Debt relief for the filer
Unfortunately, when a spouse files for bankruptcy during a divorce:
- Court timelines may be disrupted
- Financial outcomes can drastically and suddenly change
- Conflicts over jurisdiction can arise
What Happens When Bankruptcy Is Filed During a Pending Divorce?
When someone files for bankruptcy, they are immediately granted an “automatic stay.” In accordance with the law, this stay:
- Stops collection efforts
- Halts all lawsuits and enforcement actions (in relation to debt)
- Can temporarily pause divorce proceedings
In the event that your spouse files for bankruptcy, some matters, like property division and enforcement of financial obligations, may be paused. However, you’ll find that some matters may continue, such as:
- Child custody
- Parenting time
- Certain support orders
It is important to understand, however, that the bankruptcy court ultimately decides whether or not a divorce case may proceed.
How The Automatic Stay Can Affect You As the Non-Filing Spouse
When your spouse files for bankruptcy, you may assume that this matter will not impact you. Unfortunately, this is not the case. The automatic stay may impact your ability to seek support and affect your financial obligations.
As such, when your spouse files, you may be unable to:
- Finalize equitable distribution of property
- Enforce financial orders imposed by the courts
You’ll also find that you may suddenly be responsible for shared marital debts, which can impact your credit score.
Unfortunately, because the automatic stay halts many proceedings, it can cause significant court delays that ultimately increase your emotional stress and prolong uncertainty surrounding your finances.
Which Divorce Debts Can and Cannot Be Discharged
If your spouse has filed for bankruptcy during your Morris County divorce, it’s important to understand that not all debts related to the divorce are handled the same during this process.
Debts That Generally Cannot Be Discharged
- Alimony or spousal support
- Child support
- Any domestic support obligations
Debts That May Be Discharged
- Property settlement obligations
- Certain allocations of marital debts
- Equalization payments
However, the court will examine whether or not debts should be discharged based on:
- If the divorce decree is finalized
- What bankruptcy chapter was filed
- The discretion of the court
Timing of Bankruptcy in Relation to Divorce Matters
It’s necessary to understand that the timing of when bankruptcy has been filed will have a considerable impact on how this matter proceeds.
In general, if bankruptcy has been filed before your divorce is finalized:
- Certain property settlement obligations may be discharged
- Equitable distribution of marital assets may be delayed
However, if bankruptcy is filed after the divorce has been finalized:
- Any support obligations will remain enforceable by the courts
- Property settlement terms may be reviewed
Which Court Has Authority?
As a bankruptcy filed during the divorce process involves two separate courts – the United States Bankruptcy Court, District of New Jersey, and the Superior Court Family Division – understanding which court has authority during this process is critical. However, authority may be divided in these instances.
As such, the bankruptcy court will handle:
- Dischargeability of debts
- Enforcement of the automatic stay
The divorce court, on the other hand, controls:
- Child custody and parenting time
- Determination of support obligations
However, the courts may coordinate jurisdiction to provide relief from the automatic stay and allow divorce proceedings to continue.
Contact an Experienced Morris County Divorce Attorney Today
If you discover that your spouse has filed for bankruptcy during your divorce, it’s important to understand that this process can impact you. As such, obtaining competent legal representation with Townsend, Tomaio, Newmark & Clancy is in your best interest. Our team can examine your circumstances to determine the best course of action to help you through these incredibly complex matters. Contact us today to learn how we can assist you.
