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Bankruptcy and Divorce – Be Very Careful

On January 4, 2019

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Adeleye v. Driscal, ___ S.W.3d ___, No. 14-14-00822-CV, 2018 WL 1057482 (Tex. App.— Houston [14th Dist.] 2018, no pet. h.) (02-27-18).

The above is a startling reminder that you should be very careful in a divorce case where a bankruptcy is pending.  As background, if a spouse declares bankruptcy, most parts of a divorce are put on hold or a “stay” is put in place until the bankruptcy court either resolves the bankruptcy or allows the divorce court to proceed.

Initially, in this case, the entire divorce proceeded from beginning to end.  The Husband elected to appeal several of the rulings and ultimately the appellate court affirmed Husband and Wife’s final decree of divorce.  However, Husband filed a motion for rehearing alleging that he filed for Chapter 13 bankruptcy before the divorce was filed and that the bankruptcy was not discharged until after the divorce decree was signed. Thus, Husband argued that due to the automatic stay, the trial court lacked jurisdiction to divide the marital estate. The appellate court then remanded the case to the trial court. In its opinion, the trial court set forth law governing automatic stays, including that stays apply automatically, do not require notice, do apply to divorce proceedings, void any actions taken against the debtor or his property, and can be raised at any time, even sua sponte on appeal. On remand, the trial court found that no notice had been received of the stay and that because of the lack of notice, the stay was lifted after 30 days.

The appellate Court, however disagreed, finding that any action taken in violation of an automatic bankruptcy stay is void, not merely voidable. While a bankruptcy stay may be limited to 30 days in certain circumstances, there was no indication or finding that such circumstances existed in this case. The trial court had no authority to divide the marital estate until the stay was lifted by the bankruptcy court.

In short, this couple had a divorce and appeal that was void because the pending bankruptcy was never stayed.

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