Bankruptcy and Divorce: What You Need to Know (Part 1)

Not every divorce involved a bankruptcy, but, unfortunately, it is not that uncommon either. Unfortunately, bankruptcy and divorce in Illinois always go hand in hand. Sometimes financial problems lead to the divorce. Other times, a couple already on the edge financially may incur fees and costs in getting divorced that a bankruptcy becomes an unavoidable reality. In Illinois, divorcing couples recently have had to face their divorce, a tough economy, relatively high unemployment, and lower home prices. In many Illinois divorce cases, this has meant foreclosure and bankruptcy.

First, bankruptcy cases are in federal court. A federal statute sets forth the bankruptcy law. Therefore, as with all other law, federal law preempts state law. That means if there is a conflict between Illinois law and federal bankruptcy law, the bankruptcy law will control. This is important because typically federal courts defer to Illinois law for domestic matters, but not when a bankruptcy is involved.

Next, a bankruptcy stops virtually all other types of legal or collection proceedings. This is referred to as the automatic stay. Whether the bankruptcy is filed jointly by the couple or by either the husband or wife individually, a significant portion of the Illinois divorce case will come to a halt when a bankruptcy case is filed. In Illinois, a divorce involves a division of property and debt, determination of child support and spousal support, and child custody and visitation issues. A bankruptcy estate takes control of the property and the automatic stay prohibits certain actions. The automatic stay is supposed to prevent any third party from attempting to exert any control over the property included in the bankruptcy estate. The exact property in the bankruptcy estate depends on whether the bankruptcy is a Chapter 7 complete liquidation or a Chapter 13 repayment plan.

Bankruptcy and Divorce Illinois

There are exceptions to the automatic stay, though. The family courts in Illinois can still establish paternity, establish or modify child support, maintenance, or alimony, and make determinations regarding child custody and visitation. An automatic stay also shouldn’t prevent an Illinois court from deciding an attempt to collect child support, maintenance or alimony from property not in the bankruptcy estate or withhold income for those same support obligations. However, if there are any doubts, you would be well advised to ask the bankruptcy court to lift the automatic stay and give you permission. The penalties for violating the automatic stay can be harsh.