When one spouse files for either a Chapter 13 Bankruptcy or Chapter 7 Bankruptcy, “Automatic Stay” immediately comes into effect upon bankruptcy filing. Automatic Stay stops most legal action pending when the bankruptcy case is filed. If you are in a middle of a divorce (aka dissolution of marriage) proceeding and one spouse filed for bankruptcy, the Automatic Stay stops the property division because the property rights of the filing spouse, including community properties, becomes part of the bankruptcy estate.
A debt created to the division of property in a divorce proceeding is not dischargeable in Chapter 7 Bankruptcy but is dischargeable in Chapter 13 Bankruptcy, assuming that the debt was not for the purpose of support.
If the property is returned to the filing spouse at the end of the bankruptcy case because there is no equity or is exempt under the state statutes, the property division of the divorce can proceed.
Keep in mind that Automatic Stay does not stop all legal proceeding. For example, it does not stop legal proceeding to determine support obligation, support collection on wages earned after the date of bankruptcy filing, collection for child support arrears from property not in the bankruptcy estate, child custody and visitation, paternity, suspension or restriction of driver’s license or professional license as leverage to collect child support, domestic violence, or dissolve the marriage without dividing the property.
Speak to a Sacramento Bankruptcy Attorney for more information. Additional Bankruptcy Law Offices are located in Stockton and Fairfield, California to help consumers and small business owners of Northern and Central California with overwhelming credit cards, personal loans and other debts and to utilize the Automatic Stay to stop foreclosure, repossession, wage garnishment, and IRS levy and garnishments.