Can I file an Oklahoma Bankruptcy during a Divorce?

It is possible to file for bankruptcy during a divorce, but requires consideration of the effects on the divorce process. Divorce and bankruptcy are both significant life events, and when they occur simultaneously, they can complicate financial and legal matters. Whether filing for bankruptcy during a divorce is the best course of action will depend on individual circumstances.

Types of Bankruptcy: Chapter 7 vs. Chapter 13

The type of bankruptcy you file will play a significant role in how it impacts your divorce proceedings. Chapter 7, often called fresh start bankruptcy, involves selling non-exempt assets to pay off creditors, with most remaining debts discharged. The truth of the matter is that in a chapter 7 most of the assets you have are exempt and not subject to liquidation. Chapter 7 typically takes about 4 to 6 months to complete. This type of bankruptcy may simplify the division of debts in a divorce by discharging unsecured debts like credit card balances, medical bills, and personal loans.

However, Chapter 7 will not discharge obligations like child support, alimony, or certain types of tax debts. If you and your spouse are planning to file Chapter 7, doing so before finalizing your divorce can streamline the division of assets and debts, as the bankruptcy will wipe out much of the unsecured debt beforehand.

Chapter 13 involves a court-approved repayment plan lasting 3 to 5 years, where debtors pay back some or all of their debts based on their income and assets. Filing for Chapter 13 during a divorce may complicate matters, as the long repayment period may overlap with divorce proceedings.

Chapter 13 requires joint repayment of debts for couples filing together, making it more challenging to divide financial responsibilities during the divorce. However, if one spouse is trying to protect certain assets from foreclosure, Chapter 13 may be beneficial.

How Bankruptcy Affects the Divorce Process

Filing for bankruptcy during a divorce can have several consequences for both processes. When you file a bankruptcy petition, an automatic stay takes effect, temporarily halting most collection actions. This stay also applies to property division in a divorce, preventing the family court from making decisions about dividing marital assets until the bankruptcy case is resolved.

If you file during divorce, the bankruptcy court takes control of the marital estate to evaluate which assets can pay creditors. This delays property division because the bankruptcy process must finish before the family court can divide the remaining assets. In Chapter 7 cases, after selling non-exempt assets, the divorce court divides whatever remains.

Bankruptcy can help eliminate or reorganize debts from the marriage, making it easier to divide financial responsibilities in the divorce. If both spouses are liable for joint debts, such as credit cards or loans, bankruptcy may discharge those debts. However, the spouse not filing for bankruptcy may still be responsible for certain debts under family law, even if they were discharged in the other spouse’s bankruptcy.

Bankruptcy does not discharge domestic support obligations, such as alimony (spousal support) or child support. The family court retains jurisdiction over these matters during bankruptcy proceedings, and are not affected by the automatic stay. You must still pay any court-ordered support payments, regardless of the bankruptcy case.

Bankruptcy Timing and Strategy

Determining when to file for bankruptcy requires consideration based on your financial circumstances, your assets, and your goals. Some key factors to consider include:

• Filing Before: If you and your spouse are on good terms, filing a joint bankruptcy before divorce may be advantageous. By filing jointly, you can eliminate many shared debts, making the divorce process smoother by reducing the need to divide debts. This can also save on filing fees and attorney costs, as you only need to file one bankruptcy case.
• Filing During: If one or both spouses are struggling with debt, filing for bankruptcy during the proceedings may provide relief. However, this can complicate the division of assets and delay the divorce.
• Filing After: If divorce is finalized and one spouse is left with overwhelming debt, filing for bankruptcy afterward can help them obtain relief. However, debts assigned in the divorce settlement that remain solely in the name of one spouse may still be enforceable.

Both divorce and bankruptcy can negatively affect your credit score. Filing for bankruptcy remains on your credit report for several years and may make it challenging to obtain new credit. However, for individuals overwhelmed by debt, the benefits of debt relief may outweigh the impact on credit scores.

Maybe You Should File Bankruptcy Together

This may not be possible because after all you aren’t getting along that’s why a divorce is in the works. But, consider this…to qualify for a chapter 7 bankruptcy you must pass the means test. This means that the court looks at your family size and the total family income. If your income is to high to qualify as a single person does including the soon to be ex-spouse allow you to qualify. Or, on-the-other-hand, maybe being divorced helps you qualify under the means test. Which ever is the case, stop and think about the consequences of filing before or after a divorce.

Tulsa Attorneys in Your Corner

Filing for bankruptcy during a divorce is possible, but requires careful consideration of how it will affect both processes. Chapter 7 bankruptcy can simplify the division of debts in a divorce, while Chapter 13 may complicate matters. Regardless of when you file, bankruptcy can provide relief from overwhelming debt, but it does not affect spousal or child support obligations.

It is essential to consult with both a bankruptcy attorney and a divorce attorney to navigate the complexities of the situation and determine the best strategy for you. Contact our Tulsa bankruptcy and divorce lawyers at Kania Law Office by calling (918)–743-2233 or online.