Ch 7, 13

File Ch 7 for just $125 learn more now. Thanks for visiting!

One of the biggest reasons people file bankruptcy is divorce. Whether the financial problems contributed to the divorce, or are a result of the divorce, if bankruptcy is a consideration you may want to plan ahead and talk with your spouse about filing before divorce papers are filed. Let’s take a look at what happens in a bankruptcy if you file before or during a divorce and what happens if you file after divorce is started or finalized.

Bankruptcy Before or During Divorce

Filing a bankruptcy petition before divorce has several benefits. The first is that marital debt can be wiped out, if filing a chapter 7 bankruptcy, so that the final divorce settlement doesn’t have to spell out who is responsible for which debts, and you are left hoping your ex pays their portion. While a spouse can’t discharge a debt that is included in a divorce settlement by filing bankruptcy after the divorce, the reality in a divorce is that it doesn’t matter who the court says must pay a debt, if your name is on the debt, the creditor can come after you. Settling debts before divorce can avoid future problems. Filing jointly will also save on bankruptcy expenses instead of having to pay for 2 attorneys and filings.

Once a bankruptcy petition has been filed and the automatic stay is put in place, a divorce petition can be filed. Once the bankruptcy exemptions have been determined, the divorce judge can then divide the property that is available between the parties.

If you file bankruptcy and then file for divorce, you are still entitled to request child support and/or alimony as support obligations are not able to be discharged in a bankruptcy.

Bankruptcy After Divorce

First things first, if you are scared that your spouse might file bankruptcy after the divorce is final, you should try to protect yourself as much as possible. If possible, refinance any debts according to who will be responsible for them after the divorce. Try to get property settlements listed as support obligations so they can’t be discharged in a future bankruptcy. Take out a security lien as a backup to debts your spouse is to pay you after the divorce on an important piece of property the spouse will receive in the divorce. If they try to discharge the debt you can then seize the property to pay the debt. Finally, have an indemnity clause written into the divorce decree that requires your spouse pay the debts or repay you if the creditor comes after you for the debt. If your spouse files bankruptcy at that point you can make a claim in court.

As we stated before, any debt that is included in a divorce settlement is not eligible to be discharged in bankruptcy, but that doesn’t wipe out your own financial responsibility if your name is on the debt.

As difficult as it is, it’s best to speak with your soon to be ex spouse about the possibility of bankruptcy and consult a bankruptcy attorney to determine the best course of action.

Child support will be handled differently depending on if you owe child support or are supposed to receive child support when you file bankruptcy. Let’s take a look at what happens in each situation.

You Owe Child Support

If you owe child support and plan on filing bankruptcy, you need to know that child support can not be discharged in bankruptcy. That means you will still owe the child support after filing. If you are responsible for your child’s health care. medical bills or child care these debts could also be subject to not being able to being discharged.

If you have lost your job or are facing other financial difficulties and need your child support lowered, you need to file a modification for reduction as soon as possible. Your child support can’t be lowered until you file, so it’s in your best interest to file as soon as possible. Bankruptcy cannot help you lower child support.

If you are behind on your support, in arrearages as they call it, your non-exempt property can be sold in order to pay the child support in a chapter 7 bankruptcy. If you are filing a chapter 13 bankruptcy, the arrearages must be included in your proposed payment plan and be paid off in order to receive your bankruptcy discharge.

You Are Owed Child Support

If you are owed child support and need to file bankruptcy, most states have an exemption that will protect the child support you are owed from being included in your bankruptcy estate. This will allow you to file without risking the support that is owed to your children.

If you are unclear about the laws regarding child support and bankruptcy you should speak with a bankruptcy attorney to make sure you are protected.

If your financial situation is forcing you to file bankruptcy, losing your job would probably not help matters. Luckily, the Federal Bankruptcy Laws forbid employers to fire anyone just because they filed bankruptcy. In most cases your employer won’t even know about your bankruptcy so you won’t be at risk of losing your job anyway. If they do find out, they can’t discriminate against you:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

(c)

(1) A governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(2) In this section, “student loan program” means any program operated under title IV of the Higher Education Act of 1965 or a similar program operated under State or local law.

Employment After Bankruptcy

If you are looking for a new job and you have a bankruptcy on your credit history, the employer can take your credit score into consideration when making a hiring decision. While most bankruptcies and debts are wiped from your credit report after 7 years, they can be included in a background check if you are applying for a position with a salary of $75,000 or more. While the law still says you can’t be discriminated against for filing bankruptcy, can’t be fired or taken out of the hiring process for a new job due to a prior bankruptcy, the reality is that an employer can make a decision based on your bankruptcy and makeup another cause.

If you believe you have been discriminated against by an employer due to your bankruptcy filing, your only recourse is through litigation.

Due to the social stigma attached to bankruptcy and some desire to pay debts you are responsible for, you may be interested in debt settlement. Let’s talk about what debt settlement is and what the differences are between debt settlement and bankruptcy.

Debt Settlement

There is do it yourself debt settlement and debt settlement companies. Debt settlement companies charge you a fee to negotiate with your creditors to either get your interest rates lowered or forgive a portion of your balance in exchange for immediate payment of the rest of the debt. For instance they could lower your interest rate from 24% to 12%, or take your balance of $7000 and offer you the opportunity to pay $4000 right now to wipe out the debt completely. Fortunately for you, everything the debt settlement company can do for you, you can do for yourself for free.

If you are severely behind on your payments, most creditors will work with you, though maybe not as much as you would like. If you are behind, it probably also won’t help if you get an offer to pay off your balance in a negotiation because if you had that kind of money lying around, well, you wouldn’t be behind on your bills.

If you are not behind on your debts, say you just lost your job today and want to be proactive since you can see you won’t be able to pay it next month, well, honestly a lot of creditors won’t do anything for you. Even if you tell them you will have to file bankruptcy, they will wait until you are not paying them, on the off chance that you are just calling to get something you don’t really need.

If you do decide to negotiate a debt settlement plan with your creditors, keep in mind that you should ask how things will be reported on your credit report. In a lot of cases it’s corporate policy to consider your account to be “late” if you are paying less than your normal amount. For instance in a mortgage modification situation, if your bank offers you a decreased payment for a set amount of time to help you through a period of unemployment, they report your payments as late to the credit bureaus even if you are paying on time.

Bankruptcy

In a chapter 7 bankruptcy your debts that are in the bankruptcy discharge are completely forgiven immediately. Instead of having a debt settlement plan that may take years to pay off, your bankruptcy will give you a faster start. Compared to a debt settlement plan, ch 7 is a better choice if your creditors won’t work with you, or you simply don’t have enough income to even pay minimal payments even if a debt settlement plan was established.

If you make too much money however and need to file a chapter 13 bankruptcy then you will create a repayment plan that lasts 2-5 years with the bankruptcy court. The repayment plan in a ch 13 however can be set to repay only a portion of your debts over that time, and at the end of the ch 13 the rest of the debt would be wiped out. In debt settlement this option doesn’t exist. The bankruptcy trustee is also the person dealing with your creditors which can make it easier for you.

In the end, debt settlement vs bankruptcy will depend on how successful you are at negotiating with your creditors. Today, with the new bankruptcy laws, more and more creditors are forcing people into bankruptcy rather than helping them, so don’t be surprised if you don’t get very far in a debt settlement negotiation.

As with most life decisions there are pros and cons to filing bankruptcy. Bankruptcy is a very personal decision and it’s implications vary greatly depending on your specific scenario including income, assets, and debts. These are the general pros and cons associate with bankruptcy.

Pros of Bankruptcy

* If you are filing chapter 7 bankruptcy, most or all of your debts could be wiped out in the bankruptcy discharge, letting you start over fresh.

* With bankruptcy exemptions you will be able to keep most or all of your personal property.

* Collection calls and letters will stop immediately once the automatic stay goes into effect.

* Filing a chapter 13 bankruptcy could save your home from foreclosure.

Cons of Bankruptcy

* You risk losing property in a chapter 7 if the property is not exempt.

* Your credit score will be lowered and affect your ability to get credit cards, loans, mortgages and other credit lines such as cell phone service.

* If you plan to apply for a new job, your bankruptcy could affect whether or not you are hired.

While these are the biggest pros and cons of filing bankruptcy, your bankruptcy could have tax affects and other issues, so it’s important to speak with a bankruptcy attorney and determine if bankruptcy is the right choice for you.

Instead of a bankruptcy judge, when you file bankruptcy you will first deal with the local bankruptcy trustee who will oversee your 341 meeting. Bankruptcy trustees are appointed by the United State Trustee office, which is considered the “watchdog” of the bankruptcy system.

Bankruptcy trustees oversee each case that is filed with their local bankruptcy court. They will review your bankruptcy petition, attend your 341 meeting and ask you any questions.

Chapter 7 Trustee

If you file a ch 7 bankruptcy, the trustee will determine if there are assets to liquidate that are not covered under the bankruptcy exemptions, and decide if you are entitled to a bankruptcy discharge. The bankruptcy trustee is paid out of your filing fees plus a portion of the bankruptcy estate, if there are no assets to liquidate, the trustee earns $60 per case.

Chapter 13 Trustee

If you are filing a ch 13 bankruptcy, the trustee will approve or modify your payment plan, and then disperse your payments to each of your creditors. The bankruptcy trustee earns a percentage of the amount you pay in your payment plan each month, which is determined by United States Trustee office based on the trustees expenses.

A wage garnishment is typically done when a creditor has received a judgment against you for a debt. Instead of waiting for you to pay the debt you owe, they are able to have it automatically deducted from your paycheck.

When you file bankruptcy, the automatic stay goes into effect and stops all wage garnishments, and other attempts at collecting debts like phone calls and letters from creditors. If the debt is then included in the bankruptcy discharge, the wage garnishment will be completely stopped and the debt forgiven. If the debt is not included in the discharge, the garnishment will continue once the bankruptcy court has discharged the rest of your debts or dismissed your bankruptcy filing altogether.

If the wage garnishment is for something like child support that cannot be discharged, the garnishment will likely not be stopped when you file your petition. If you are having problems paying your necessary bills due to a wage garnishment, you should get a free bankruptcy review and speak with a bankruptcy attorney immediately to determine if bankruptcy will help you end the wage garnishment.

When you file bankruptcy, the bankruptcy court will schedule a 341 meeting of your creditors. Your creditors do not have to attend, they can just file an objection after receiving notice of your 341 meeting. You do have to attend the 341 meeting in order for the bankruptcy trustee to ask you any questions they have or get clarification on your bankruptcy forms.

The 341 meeting is usually held at the local bankruptcy court, but it is not in front of a bankruptcy judge, only a bankruptcy trustee. If issues arise and a hearing needs to be scheduled to rule on an issue, then you will attend a hearing with the bankruptcy judge. During the initial 341 meeting the bankruptcy trustee will ask you questions such as:

Have you listed all of your debts?
Have you listed all of your assets?
Are you hiding any property?
Do you owe any child support or back taxes?
Why are you filing bankruptcy?
Who helped you complete your forms?
Do you need to add anything to the bankruptcy petition?
Did you read everything before you signed the petition?

If any of your creditors appear they may also ask you questions about the debt they represent. After the 341 meeting of the creditors, each of your creditors has 60 days to file an objection with the court. If no objections are filed and the trustee was satisfied with your petition and your answers during the 341 meeting then your bankruptcy discharge will be granted. If a creditor does submit an objection after the 341 meeting your discharge could be delayed until a ruling is made on the claim.

The fear of everyone finding out you filed bankruptcy is one of the biggest reasons people wait or even decide not to file. While the stigma of bankruptcy is lessening, having to file and admit you can’t pay your bills can be difficult, especially if you made financial mistakes that could have been avoided.

Fortunately not many people need to know you filed bankruptcy, except your creditors. When you complete your bankruptcy petition, you must include an address for each of your creditors. The creditors are then notified by mail to give them the chance to file an objection. If you had someone co-sign on a loan for you or a credit line, they will also be notified, so this can be a sticky situation, especially if it’s a close family member or friend.

Some cities still post bankruptcies in the local newspaper to notify the public, but very few do and even fewer people read them. If you have a wage garnishment, your employer will be notified in order to have them stop the wage garnishment. While this can be embarassing, you can’t lose your job just because you filed bankruptcy.

If you owe back taxes the local IRS office will be notified, as well as any jurisdictions where there are currently legal actions pending such as creditors suing you, or foreclosure proceedings.

For the most part, the people that are notified that you have filed bankruptcy are those that you want to be notified so the automatic stay goes into effect and they stop trying to collect your debt.

Maybe. When you file bankruptcy, the bankruptcy court must know about all income that comes into the house, whether the income comes from only the person filing, their spouse, or even a roommate that pays rent.

You Must Report Your Spouse’s Income, if:

1) If you are filing bankruptcy jointly, you must put both the wife and husband’s income on the bankruptcy petition including Schedules I and J and the bankruptcy means test.

OR

2) If you are filing by yourself but your spouse lives with you, you must report his or her income on the bankruptcy petition.

You Do Not Have to Report Your Husband or Wife’s Income, if:

1) You are not married, that seems simple enough!

OR

2) You are legally separated and your spouse has their own residence. This is typically a situation where you are separated but not divorced yet. In this case since your spouse’s income provides for a separate residence and not your’s, you do not have to report his or her income on your bankruptcy petition.