Ch 7, 13

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Although filing for bankruptcy can save you and your family from total financial ruin, it can affect your spouse in ways not directly related to the bankruptcy filing itself.

You can file for bankruptcy without your spouse and it would not bring your spouse into bankruptcy; however, the protection of the legal elimination of debt that the person who files is under, will also not extend to the spouse who did not file for bankruptcy, neither will the prohibition of collection against property.

Therefore, if you are jointly responsible for any debt, although the filing spouse will be protected, creditors can still go after the non filing spouse. If you both signed for loans on your home, credit cards, line of equity and so on, you both will be liable for that debt. But if only one person signed any of these contracts, then marriage alone does not make both spouses personally liable for this debt.

This is also true for taxes: if you filed a joint tax return you are jointly liable for the total tax due. Joint debts will be noted in some fashion on the credit record of the non filing spouse when filing for bankruptcy.
One of the most critical issues for bankruptcy filing is joint property. Your jointly owned property may be included in the bankruptcy estate and therefore possibly available to pay creditors. In states with community property jurisdictions both halves of the property become available to pay creditors of the spouse who has filed.

For all other communal property in states with community property jurisdiction, however, the marital community enjoys the protection of the filing spouse’s bankruptcy discharge. A creditor with a claim against the non filing spouse can only collect its debt from the separate property of the non filing spouse. The definition of separate property varies from state to state but typically describes assets acquired before marriage, as gifts during marriage or by inheritance.

Finally, bankruptcy filing will also affect credit reports. Each person has their own credit file, so if the person who does not file has good credit and there are no joint debts, the filing of the other spouse should not affect the non filer’s credit rating. However, bankruptcy of one spouse will impact the credit worthiness of the non filing spouse if they apply jointly in the future for a loan. The loan grantor will consider the credit rating of both applicants before making a lending decision.

The law is very complex and it is important you work with a good attorney who can help you decide whether it makes more sense to file for bankruptcy jointly or not. When it feels like you just can’t win, a good attorney will help you limit the damage and the extent to which the non filing spouse will be dragged into the bankruptcy filing.

So now that you made the decision to start fresh and file for bankruptcy, you have a second chance to straighten out your financial life.

But now you have to decide who will be the best fit to legally represent you. There are thousands of attorneys to choose from, so the selection process may be overwhelming at first but you can narrow down your options when you consider some of the following suggestions.

Before you go online to do some research, consider contacting your local bar association. Typically the bar association will provide you with a list of lawyers who specialize in bankruptcy. In some jurisdictions the bar association may charge a small fee, normally under $30, to provide this service to you. Keep in mind, that the bar association will not match you with a specific lawyer, nor will they make a recommendation. From the list you can select a few that seem like the right fit and research their backgrounds and websites online before calling them.

You can also use online websites to find lawyers. Be sure to talk to friends and family to see if anybody can make a recommendation or has heard of any of the lawyers you are considering. Often you can look at online reviews and read other people’s comments on certain lawyers or law offices.

Once you feel comfortable with your selection, go ahead and make contact. Be sure to ask the right questions, for example if the first consultation is free. Not all bankruptcy attorneys offer free consultations. Once you decide on a couple of attorneys to meet for a free consultation, prepare to explain your specific circumstances and discuss the cost of filing, counseling and fees.

It is important to talk to your attorney about cost of counseling, sometimes this service is offered online; you can then compare rates and make a decision. Understand the fee structure of your attorney and also compare rates. However, keep in mind that the attorney who offers the lowest fees is not necessarily the one for you; examine other factors such as the time frame these various attorneys promise to complete the work in. You do not want to drag this process out if your attorney is too busy to make your case a priority.

In the end it is important to trust your instincts based on your research. If the attorney fulfills all aspects on your checklist including consultation, reputation, fee and time frame you are probably in good hands.

The cost of everyday living is high and managing to live within your means can be a challenging feat even for the financially savvy. Bills can easily pile up and cause your finances to spin out of control. If you are constantly struggling to pay your bills, falling behind payments, your situation may be critical.

Are you heading for bankruptcy?

You probably are if some of these habits sound familiar:

1. Using credit cards to pay for everyday expenses could be an indicator that your cash reserves are so low you cannot pay for everyday basics forcing you to buy living essentials on credit.

2. If you are strapped for cash and only make minimum payments on your monthly credit card bills you actually accumulate more debt by charging purchases to your credit cards while not paying them off in full every month.

3. Paying your bills late each month would point in the direction of bankruptcy as well.

4. It is also a bad sign, if you regularly resort to family, friends or payday loans to borrow money from. By doing so you only increase your debt instead of reducing it thereby digging a deeper financial hole.

5. Not having any savings or emergency funds to fall back on if you, for example, lose your job, would also make you a good candidate for bankruptcy filing.

It is easy to enter this vicious cycle of accumulating more and more debt. Filing for bankruptcy can help you bring your financials in order and start with a clean slate but it would be very important to learn to spend within your means to avoid subsequent bankruptcy filings. Making a budget and learning to live with it no matter how challenging, will prevent you from defaulting on your debt, allowing you to build your credit rating for a sound financial future.

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.