January 01, 2018 Bankruptcy

The Bankruptcy Stay as a Roadblock, and How to Overcome It

By: Mary Bower Sheats

Your opponent calls to say that her client has filed a bankruptcy petition. You call your client. She wants to know whether she can change her mind and resurrect the settlement offer which she had rejected before the bankruptcy. You make a call to your friend the bankruptcy lawyer. Your friend says that you are probably entitled to relief from stay, that any settlement must be approved by the bankruptcy judge, and that the retirement funds and other assets your client owes to the bankrupt spouse might be distributed to his creditors instead of to him.

The filing of a bankruptcy petition operates as a stay, applicable to all entities, of the commencement or continuation of any judicial, administrative, or other action or proceeding against the debtor to recover any claim against the debtor that arose prior to the commencement of the bankruptcy case. If a divorce action is pending at the time of the bankruptcy filing, the bankruptcy will stay the divorce to the extent that the divorce proceeding seeks to determine the division of property that is property of the bankruptcy estate. The bankruptcy process could cause the distribution of the debtor’s interest in the marital assets to creditors of the bankruptcy debtor.

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