With Uncontested Divorce And Debt, Filing Bankruptcy May Be Preferred

Video Transcribed: Oklahoma Attorney Edward Kelley here with 888 Debt Line answers a popular topic: Should I file a bankruptcy during divorce? Well, a quick answer would be if you are working with your soon to be ex-spouse for an uncontested matter and you both have a lot of debt, then absolutely. If you are in a contested matter where the assignment of debts may become an issue and property, then perhaps not.

So let’s break that down. First scenario. Well actually, let’s start with the second scenario. Let’s say you’re in a contested divorce, you’ve got property, you’re not sure who’s going to get it, and you’re not sure if there’s going to be alimony. You’re not sure who’s going to end up with the debt. So something everyone should know is that a district court divorce judgment does not affect the creditors.

So let’s say you both own a car, you and your soon to be ex-spouse. You’re both on the note, the court awards it to him or her, not you. It doesn’t mean you’re not liable on the note. Your contract with the lender is not impaired by the divorce decree, however you, as the aggrieved party, if your ex-spouse defaults on that note and they come after you, you have what’s called a right of contribution, basically a slam dunk lawsuit against them, or whatever you’re out, whatever damages you sustained by having to pay back the lender.

Now, bankruptcy will remove you from the note. So under those conditions, bankruptcy can spare you the pain. However, if you are responsible for the note through the district court, and you do a bankruptcy and get off the note, that doesn’t mean you can’t follow the district court’s rule, and your spouse could still have an action against you.

So let’s talk about the good scenario. Well, let me say one last thing about that. You want to be very careful if you’re in a divorce, particularly if you’re receiving alimony in lieu of a property settlement. So support alimony is distinguishable from alimony in lieu of a property settlement.

The latter is a situation where maybe one party keeps the house, and the other gets a lump sum of what’s called alimony, but it’s actually in lieu of a property settlement. In that case, the alimony in lieu of a property settlement is an asset that can be seized in a bankruptcy. So that’s something definitely to keep in mind if you’re in the midst of a divorce, and contemplating a bankruptcy at the same time.

Bankruptcy During Divorce in Oklahoma

So last, let’s look at the good scenario. So you and your spouse just want to part ways amicably. You’ve got a lot of debt, you don’t have a lot of property. So bankruptcy can be a tool to make your divorce as painless as possible. So before you divorce, you can file jointly married, this happens all the time, and you can wipe out all of your debt, assuming you qualify otherwise for chapter seven, and walk away from each other without all the ties that bind with mutual debt.

So a lot of people use bankruptcy during divorce as a planning tool and that’s a perfectly legitimate thing to do. If you can walk away without having both being tied to car notes, credit card debt, it’s a lot cleaner break, so that can be a great tool in those scenarios. So depending on where you fall, bankruptcy may be the capper that makes your divorce as amicable and painless as possible.