What Are The Most Common Causes Of Bankruptcy After A Divorce That You See In Southern California?

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When a couple divorces, they no longer have their financial resources pooled together, so they may have difficulties making ends meet. One common occurrence is when one of them — almost always the ex-husband — must make large child support and alimony payments, with little leftover for personal expenses. As a result, that person might qualify for Chapter 7 bankruptcy in spite of a large gross income.

A divorced person frequently accumulates credit card debt in order to make ends meet after losing the benefit of the prior pooled income. When the debt grows to an unmanageable level, bankruptcy is the obvious solution.

1. How Does Bankruptcy Affect A Divorce In California?

Anytime someone files a bankruptcy petition, whether it is under chapter 7, 11, 13, just the act of filing the petition triggers a stay. The debtor doesn’t have to do anything else, so it’s called the automatic stay. In law, stay says stop. Whatever is stayed has to stop immediately. And in this context, what stayed or stopped is all action by creditors against the debtor, the debtor’s possessions, and the bankruptcy estate that’s created when the debtor files the petition.

There are some carve-outs in the Bankruptcy Code, exclude certain actions from the automatic stay’s restrictions. They’re listed in section 362(b) of the bankruptcy. In particular, section 362(a)(b)(i) lists exclusions associated with divorce.

Suppose the divorce proceedings are in progress and one of the parties files a bankruptcy petition. The resultant stay does not stop proceedings to determine paternity, child custody or visitation, or domestic support obligations. And it does not stop the dissolution process itself, or any proceedings regarding domestic violence.

However, there are some things associated with the divorce that are stayed. Most importantly, the division of assets is stayed because the assets are part of the bankruptcy estate and all actions against the bankruptcy estate have to stop. This means that division of assets, one of the key components of the divorce process, cannot be completed while the stay is in place. Therefore, one or both of the parties must ask the bankruptcy judge to lift the stay. Otherwise, the stay will remain in place until the conclusion of the bankruptcy case.

For more information on Bankruptcy In California, a free initial consultation is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.