The Intersection of Bankruptcy Initiation and the Automatic Stay in Dissolution of Marriage In Colorado Springs, CO

Are you involved in a Colorado legal proceeding involving bankruptcy and dissolution? An experienced Colorado Springs, Colorado divorce and child custody lawyer can guide you through the legal process and assist you in exploring your options. You have one bite at the apple in the court system so make it count.

A debtor initiates a bankruptcy by filing a petition, statement of financial affairs, and schedules of assets and debt. 11 U.S.C. § 521. Debtors also must complete a credit counseling course within 180 days from filing. 11 U.S.C. § 109(h). A meeting of creditors is held. For many Chapter 7 bankruptcies, no creditors appear as the chances of receiving payment may be low. 11 U.S.C. §§ 341 and 343.

Spouses do not have to file together. It is possible for only one spouse to file. However, unless the parties are living separately and the filing party is not receiving financial support from the nonfiling spouse, both the debtor’s and the spouse’s incomes are included in calculating whether the filing spouse passes the means test, which can limit eligibility for a Chapter 7.

The automatic stay is broad and a significant aspect of bankruptcy pertaining to dissolution and property division and spousal support because it can place the domestic relations case essentially on hold for most aspects. Cody Farms, Inc. v. Deerman, 482 B.R. 344 (2012). That is why it is generally best to complete a bankruptcy before or after filing for dissolution of marriage. When a bankruptcy action is filed, all property and assets of the debtor are transferred to the bankruptcy estate under the authority and control of the federal bankruptcy trustee. Thus the domestic relations court loses the ability to allocate property until the bankruptcy is complete or the trustee releases assets. Any order issued in violation of the automatic stay is void. McGuire v. Champion Fence & Construction, Inc., 104 P.3d 327, 329 (Colo. App. 2004) citing Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct. 343, 346, 84 L.Ed. 370 (1940).

There is a substantial impact of the automatic stay on dissolution proceedings. For practical purposes, if a bankruptcy is filed during the course of a dissolution proceeding, the dissolution is put on hold during the bankruptcy except for parenting matters and child support. The stay becomes effective when the debtor files for bankruptcy. 11 U.S.C. § 362. During this period of time, creditors can not collect. There is a process where a creditor can request a relief from stay, and if granted by the court the creditor can proceed with collection. See 11 U.S.C. § 362(d). This practice is common with home foreclosures.

Creditors can request a relief from the stay. When a creditor requests a relief from stay, a preliminary hearing must be held within 30 days from filing the motion, and a final hearing must be held within 30 days from the preliminary hearing. 11 U.S.C. § 362(e) and F.R.C.P. 4001. Violations of the Automatic Stay can result in actual and punitive damages. In addition, violations of the automatic stay can result in the bankruptcy court issuing cease and desist orders, orders to show cause, or potentially sanctions. 11 U.S.C. § 362(k). It should be noted that there are some could proceedings that are permitted to occur despite the stay:

1. Criminal, including punitive contempt,
2. Paternity;
3. Establishment, modification, and enforcement of domestic support obligations;
4. Allocation of parental responsibilities; and
5. Protection orders. 11 U.S.C. § 362(b)(1),11 U.S.C. § 362(b)(2)(B).

A highly knowledgeable and experienced Colorado Springs divorce and child custody lawyer can guide you through Colorado Springs divorce and child custody matters by negotiating, mediating and litigating on your behalf. You can focus on moving to a better future instead of spending your time attempting to navigate complex legal rules and procedures.

Sabra Janko from Janko Family Law has more than 20 years of legal experience and has written “the book” on Colorado divorce and family law – “Colorado Family Law With Forms”, published by LexisNexis, which you can find here. Contact us at 719-344-5523 or complete our online scheduling request for a free 30-minute informational consultation. We also offer paid advice sessions for a more in-depth analysis of your case.