December 15, 2017

Spouse Filing Bankruptcy Individually: Here’s How You will be Impacted

non-filing sopuseThere are many reasons why a married couple may decide that only one spouse needs to file bankruptcy. The bankruptcy law allows a married person to file an individual bankruptcy but there will be some impact on the non-filing spouse. If you are a non-filing spouse, here are some concerns that you should keep in mind:

1. Your credit score may be negatively impacted. You are most likely to face this problem when you have joint debts with a bankruptcy filing spouse and your spouse does not pay a joint debt on time.

For example, Chapter 13 allows a bankruptcy debtor to restructure payment obligations, which may include reducing the monthly installment, or extending the term of the loan. As a non-filing spouse you will likely be in violation of the contractual terms of your loan, which will appear as a late payment on your credit report.

2 Your joint bank accounts may be at risk. The bankruptcy law does allow a Chapter 7 or Chapter 13 debtor to declare a set amount of cash as exempt (sheltered) property. Depending on the particulars of the case the amount of this exemption can range from zero to around $10,000. [Read more…]

Public Bankruptcy Filings may Help Your Cause in a Divorce Battle

public bankruptcy recordsZsa Zsa Gabor, a 1950’s movie star known for her 8 marriages, once remarked, “I’m an excellent housekeeper.  Every time I get a divorce, I keep the house.”  Most people, of course, do not find divorce much of a laughing matter, especially when it comes to financial issues.

If you are going through or have gone through a divorce, you know that the divorce process usually causes financial hardship to both husband and wife, and this is especially true if your divorce involves lengthy and expensive litigation.

Not surprisingly, one or both parties to a failed marriage often turn to bankruptcy after their divorce in an effort to recover from the financial burdens of divorce.  Debts to a former spouse for alimony and support are not dischargeable in a bankruptcy but personal loans and credit card debts owed to third parties are dischargeable to the bankruptcy filer, although discharging these debts may run contrary to the divorce judge’s order about who is to pay what.

[Read more…]

Divorce and Bankruptcy – an Unhealthy Relationship

There are many reasons that bankruptcy filing rates are so high.   Clearly an unexpected job loss or reduction in earnings can lead many honest, hardworking people into a bankruptcy lawyer’s office.  When a job loss is coupled with a divorce, I think that the likelihood of bankruptcy by husband or wife goes up exponentially.

I recently read a column written by attorney John Mayoue, a divorce lawyer here in Atlanta who is known for his representation of celebrities and other high profile clients.   John notes that in the domestic relations legal community, Atlanta is known as the “divorce belt.”  In the bankruptcy lawyer community, Atlanta is known for having one of the highest bankruptcy filing rates per capita.  I do not think that this is a coincidence.

Just as an ethical bankruptcy lawyer will advise you to search for alternatives to Chapter 7 or Chapter 13, a thoughtful family law attorney will advise you to search for alternatives to divorce.  Bankruptcy or divorce may be inevitable, but when you seek legal counsel, look for a lawyer who does not offer “one size fits all” solutions and recommends alternatives – this would be a good sign that you are talking with a lawyer who has your best interests at heart.

John was gracious enough to give me permission to reprint his thoughtful article about why couples struggling in their marriages ought to consider alternatives to divorce.  I recommend that you take his message to heart.

Divorce Lawyer John Mayoue Offers Advice to Couples Contemplating Divorce

The divorce rates in the United States are some of the highest in the world. Increased financial pressure brought on by the current economy is fueling the fire for marriages already in jeopardy, and the rapidly increasing number of homeforeclosures further demonstrates the severe consequences these pressures can produce.

According to Atlanta, Georgia based divorce attorney John C. Mayoue, who has been counseling couples through divorce cases for more than thirty years, the approaching holiday season will cause these numbers to spike further and will also be a busy time for lawyers specializing in divorce cases, as the holiday season often proves to be a breaking point for marriages in crisis.

“During the holidays, people’s pent-up thoughts about relationships and careers and where they are with life become intensified,” Mayoue says. “In December, for example, we have the highest number of suicides, divorce filings and bankruptcies of any month. It’s just a very difficult time for people.”

Although our society makes divorce seem to be an easy and acceptable way out for couples who aren’t quite happy in their situation, Mayoue cautions couples not to be too hasty to start the divorce process. Divorces that make it to trial are painful and embarrassing, and the results are often not fair for both parties involved. If you are considering divorce, Mayoue suggest taking the following steps first.

1. Try to work out your differences

Ask yourself why you want a divorce. Are you just responding to life’s pressures? Are you looking for a way out of a stressful situation and not just your marriage? Or do you have legitimate concerns that are truly irreconcilable? [Read more…]

Conversion to Chapter 7 and Divorce Issues

Whenever I file a Chapter 13 on behalf of a client, I remind my client that five years is a long time, and that a lot can happen during the term of a Chapter 13.  Marriage counselors reguarly opine that financial stress often leads to marital discord, so it should come as no surprise that the stresses inherent in a Chapter 13 will result in marital problems.

What should you do if your marriage begins to unravel during the course of your Chapter 13.  There are obviously many scenarios that I could discuss, but I am going to start with a real life example that I am watching develop currently.

The case study I am presenting involves a Chapter 13 client who was married at the time we filed over two years ago.  Because the debts at issue were hers alone, she filed individually.   Over the course of the past two years, her marriage has floundered and she has been separated from her husband for well over 6 months.  She advises me that there is no hope for rehabilitation.

My client has primary physical custody of her children, and she has moved into a rental home.  Her estanged husband lives in the former marital domicile.  As best I can tell, there is a small amount of equity in the home – perhaps $10,000 to $15,000.

My client is also struggling financially.  Although she receives child support, she is having a difficult time making ends meet.  Gas prices, of course, are through the roof, as are the costs of other essentials like food and clothing.

The only secured debt in our case was a vehicle loan, but now the vehicle is non-operational and she is prepared to surrender it.  There is a small amount of outstanding tax debt and around $25,000 or unsecured debt.

If there was no divorce issue, this would clearly be a case that is appropriate for conversion to Chapter 7.  My client’s income is below the median income for a 3 person household and all of her debts are now unsecured.

The problem, of course, has to do with the pending divorce issues.  If my client was to convert to Chapter 7, it would be in her best interest – in a bankruptcy context – to surrender all interest in her house.  She is not living there and it does not make any sense for her to reaffirm a financial obligation on someone else’s house.  After all she has no control over whether her soon-to-be ex-husband will make payments regularly or even maintain insurance on the property.   If the property insurance should lapse and the house burns down, my client could find herself with hundreds of thousands of dollars of liability, not to mention devastating derogatory marks on her credit.

From a divorce perspective, however, the decision is not so clear.   Right now, the ex-husband is living in the house and presumably wants to stay there.  If there was no bankruptcy complication, my client could use her title and equitable interest in the house as a negotiation point.  Ever dollar that the ex-husband spends to pay down the mortgage is creating equity that my client may have a claim against.  Arguably, my client could ask a divorce court judge to award her possession of the house, so as to provide a stable living environment for her kids.  The estranged husband most likely does not want to live with the uncertainty.  My client could bargain away her equitable interest in the house in exchange for a larger property settlement or perhaps for some other concession.

If my client was to convert to a Chapter 7 now and surrender all interest in her house, she would be giving up that leverage.  In addition, the estranged husband could use the bankruptcy filing against my client – perhaps questionning her financial stability or arguing that his credit has been damaged if the mortgage lender forces him to refinance.

Everything else being equal, my advice to my client is to consult with her divorce lawyer as soon as possible and to get that process moving.   The bankruptcy trustee and judge usually will not have a problem with a property transfer in a Chapter 13 that is pursuant to a divorce.   If she is going to convert to Chapter 7 – and she really does need to do so – she should wait until her divorce case is more settled.

Ideally, she should not have waited to finalize the divorce, but she did.  Now she may have to wait several months, but, in my view, this is her best course of action.

Why Does My Ex-Wife Have to Get Notice About My Bankruptcy Filing?

My husband and I are filing a chapter 7 bankruptcy in Georgia. During the 1st consultation our lawyer notified us that the court would notify his ex-wife about us filing bankruptcy. She resides in South Carolina. We are up to date on child support and have never been late. The child support is not included in the bankruptcy. Why does she have to be notified? Shouldn’t this be our personal business? Please explain if this is a law or something. Thanks!

Jonathan Ginsberg responds: the 2005 changes to the bankruptcy laws added a requirement that if there is a
claim for a domestic support obligation in a case, the trustee (either the Chapter 7 trustee or the Chapter 13 trustee) must provide written notice (with certain required information) to (1) the holder of the domestic support obligation claim, and (2) the applicable State Child Support Enforcement Agency established by §§ 464 and 466 of the Social Security Act. A notice at the time of filing and a second notice at the time of
discharge are required. In the notice to the holder of the domestic support obligation, the trustee must
provide contact information for the State Child Support Enforcement Agency.

You can read more about this requirement on the U.S. Trustee’s website.

In Chapter 13 cases filed in the Northern District of Georgia, the standard plan used by all three trustees has a place where the debtor has to check off that he does or does not owe a domestic support obligation and if he does, the address where he sends the money.

You cannot get your Chapter 13 case confirmed if there is a domestic support delinquency that is either unresolved or not addressed in your case.

If you did not realize this, the information contained in your bankruptcy filings is public record. Other than Social Security numbers, your credit card account numbers, and the names of children, pretty much everything else in your bankruptcy petition can be accessed by anyone.

When the BAPCPA changes were being debated in Congress, a number of elected representatives expressed concerns about the plight of custodial parents and instances where debtors used the bankruptcy laws to avoid paying support. Previously, for example, debt arising from a divorce that was in the nature of property division could be discharged – this has been changed and this type of debt is now non-dischargeable.

Should Divorcing Spouses File a Joint Bankruptcy Case?

I received an interesting question from a divorce lawyer:

I just filed a divorce complaint for a client.  Her husband is talking to a bankruptcy attorney about filing for bankruptcy.  He probably will not fit into a Chapter 7.  Is there any reason that my client should file jointly with him or hold off the divorce?  Thanks.

Here is my response:  Sometimes it does make sense for a divorcing couple to file a joint bankruptcy.  If there is a lot of joint debt, a joint case can allow them to get rid of debt, surrender a house or motor vehicles, and cancel leases and other executory contracts.

In a Chapter 13, the divorcing couple would have to demonstrate that even with two households the proposed budget would allow for a trustee payment.  Further, if one spouse or the other is keeping certain property, the Chapter 13 payment would have to be allocated and both parties agree to a division of the trustee payment obligation.  As you might imagine keeping a joint 13 alive months or years after a divorce can be difficult.

I would also look at this case in terms of what might happen if the parties go ahead with the divorce and your client’s ex-spouse files his own bankruptcy.  Would your client get stuck with joint credit card bills, a vehicle, tax debt?

In general I am not a big fan of a jointly filed case by divorcing spouses.  However, I do think that it might be worthwhile for your client to consult with a bankruptcy lawyer to run through the different scenarios.  You, as the wife’s lawyer, would benefit from knowing what might happen if the husband files his own case down the road so that you can include provisions in the divorce agreement that would protect her interests.

[tags] divorce and bankruptcy, joint bankruptcy filing by divorcing spouses [/tags]

 

Can An Ex-Spouse Use Chapter 7 to Avoid Paying a Credit Card Debt That Is Part of a Divorce Decree Obligation?

A divorce lawyer called me today with a question about the impact of bankruptcy on a debtor’s obligations under a divorce decree.  The divorce lawyer represented a man who was the co-signer of a credit card along with his ex-wife.  The divorce decree provided that the ex-wife would be responsible for payment of this credit card debt.

In December, 2006, the wife filed a Chapter 7 bankruptcy and included the credit card debt in her petition.  She did not list the ex-husband as a creditor in the case and the ex-husband did not receive official notice of the filing.  The husband’s divorce lawyer wanted to know what, if anything, could the ex-husband do to protect his interests.

I responded by noting that Bankruptcy Code Sections 523(a)(5) and (a)(15) apply here.  523(a)(5) makes debts in the nature of alimony and support non-dischargeable where as (a)(15) provides that debts to a former spouse not in the nature of alimony or support but incurred by the debtor in connection with a divorce decree are not dischargeable.

Therefore, in my view, the ex-husband is a creditor by virtue of financial liability that he would incur if the debtor fails to pay the credit card debt.

I further advised my attorney colleague that she should contact the debtor’s lawyer and inquire as to whether the debtor would consent to an Order holding the obligation to the ex-spouse as non-dischargeable in the Chapter 7.   Arguably, 523(a)(15) and 727(b) make these debts non-dischargeable automatically, but I would feel safer with an Order from the bankruptcy judge formally holding that these debts are not discharged in bankruptcy.

I also ran this scenario by my colleague Shayna Steinfeld, a lawyer who practices in the area of bankruptcy and domestic relations law and she concurred with my analysis and added two additional points:

1) that this property division debt would be dischargeable in a Chapter 13 (pursuant to Section 1328(a)(2); and
2) that the automatic stay of Code Section 362  may not apply (per Section 362(b) if the credit card obligation was in the nature of alimony or support.

The bottom line – the debtor wife is not going to be able to stick her ex-husband with this credit card debt, although the ex-husband may need to protect his rights by filing an appropriate pleading in the bankruptcy court.  The wording of the divorce decree here is also critical in determining how this credit card obligation will be treated.

Seven Minutes to Summarize Bankruptcy Law!

Several months ago, I was invited by my colleague Marvin Solomiany to speak at a Family Law seminar presented by the Atlanta Bar Association.  Marvin explained that my role would be to discuss bankruptcy at the "hot tips" part of the seminar.  It turns out that the "hot tips" presentation is where five lawyers take seven minutes each to brief the family lawyers (i.e. divorce) about our areas of specialty.  Besides myself, there was an immigration lawyer, a real estate lawyer, a criminal defense lawyer and a business lawyer.  As I commented to the crowd, if there is if there is speed dating in hell, five lawyers in 35 minutes is what you would get!

At first I thought that the idea of speaking for seven minutes was kind of silly, but the more I thought about this, the more it made sense to me.  The point of the "hot tips" presentations was to expose family lawyers to two or three points about another area of law and to introduce them to lawyers who practice in those areas.  This was a chance for me to gain exposure before 75 or 80 lawyers who I otherwise might not meet.

Because I only had seven minutes, I was forced to focus on three or four points that would be most relevant to a family law attorney.  Here is what I said:

1. a family lawyer ought to think about whether a joint bankruptcy – prior to the entry of a final divorce decree – makes sense.  Since financial disputes can be the source of many divorces and settlement agreement arguments, there are some circumstances when a joint divorce while the couple is still married can make sense to eliminate issues.  Bankruptcy can allow a divorcing couple to cancel leases, break contracts, surrender secured collateral and reduce or eliminate credit card debt.  A joint bankruptcy does not always makes sense, but sometimes it does.

2. divorce lawyers need to be aware of Bankruptcy Code Sections 523(a)(5) and (a)(15).  These Code Sections talk about what divorce related debts are dischargeable.  Under the current (post October 17, 2005) law, pretty much any divorce related debt cannot be discharged in bankruptcy.  However, cases filed prior to October 17, 2005 are governed by the old version of Code Section 523(a)(15) which provides that some divorce/separation related debts may be dischargeable.  This means that family law attorneys need to be aware that two different versions of the same statute might apply – depending on when the debtor/spouse filed for bankruptcy.

3. financial disclosures are a big part of domestic relations litigation.  I pointed out to the family law lawyers that bankruptcy schedules are public record and that the financial information within a petition could be used to evaluate the accuracy of financial disclosures in divorce litigation.  Family law lawyers should know how to access bankruptcy paperwork and should know how to read the schedules.

4. my final suggestion was that family law attorneys should find blogs (like this one) and subscribe to those blogs.  In my view, a good legal blog will include case studies, case law updates and other observations that can help a non-specialist keep up with developments that might affect his practice.  News alerts are another good way to keep current.  It still surprises me that so few lawyers use blogs, much less publish them.  I strongly believe that my participation in the blogosphere has made me a better lawyer and I encourage my colleagues at the bar to take advantage of this powerful and free resource.

[tags] divorce and bankruptcy law Georgia, 523(a)(5), 523(a)(15), lawyer blog, bankruptcy schedules [/tags] 

Financial Obligations to Ex-Spouse Set Out in Divorce Decree May Survive Bankruptcy

The Georgia Supreme Court recently considered the issue of whether a debtor/ husband could be held in Contempt of Court in Superior Court for refusing to pay a joint marital debt.  In the case of McGahee v. Rogers, the trial court denied the contempt motion on the grounds that (1) the debtor/husband had discharged his obligation to pay the debt and (2) because the debts had been discharged, contempt relief was inappropriate.

The Georgia Supreme Court reversed and remanded, holding that (1) the Bankruptcy Court had not specifically ruled on whether this joint debt was in the nature of alimony and support – and therefore non-dischargeable, and (2) that the Superior Court judge had "concurrent" jurisdiction to make this dischargeability determination.  The Supreme Court then sent this case back to the Superior Court judge for a dischargeability determination.

What does this mean?

Firstly, it appears that the Georgia Supreme Court is going beyond the question of whether the debtor/husband is liable for contempt.  If the Superior Court judge finds that the joint marital debt obligation is in the nature of support/alimony (Bankruptcy Code Section 523(a)(5) debt) then the debtor/husband will still be responsible to pay this debt [for the benefit of his wife] despite the bankruptcy discharge, and can be punished by contempt remedies, including jail, if he does not pay.  If the Superior Court judge holds for the wife, it would appear that the husband's financial obligation under the divorce decree remains due and owing.

Second, it re-establishes that the Georgia Superior Court judge has the authority to make a ruling on whether a debt is dischargeable pursuant to the Bankruptcy Code.  

Third, it is instructive to note that the applicable Bankruptcy Code used in this case was the pre-October 17, 2005 Code.  The October 17 amendments changed both Section 523(a)(5) and (a)(15) to expand the exception to discharge for marital debts.  Gone is the "balancing test" of former Code Section 523(a)(15).  Under the current Code, it appears that just about every debt arising from a divorce is non-dischargeable.  The practical impact of this will be to eliminate the strategy of using a bankruptcy filing to get rid of a divorce related debt.

Finally, as a matter of strategy, I am suggesting to my colleagues in the domestic relations bar that they should specifically include in every divorce settlement agreement a provision that clearly excepts marital debts from bankruptcy discharge.  In turn, if the ex-spouse does file bankruptcy it should be very easy to get a quick (and inexpensive) ruling from the Bankruptcy Judge holding that the marital debt is non-dischargeable.  Hopefully the net effect of cases like McGahee and the new Code provisions will reduce the need for costly litigation.

Along the same lines, it might make sense for divorcing parties to consider filing a joint bankruptcy prior to the divorce for the purpose of eliminating joint debt and potential problems.

Remember, even if you can hold your ex-spouse in contempt for failing to pay a joint debt, your rights against your ex-spouse have no effect whatsoever on the creditor.  The creditor can sue you, garnish your wages and bank accounts – it becomes your problem to force your ex-spouse to make you whole again.

Thanks to Scott Riddle and his Georgia Bankruptcy Blog for highlighting this case. 

[tags] divorce and bankruptcy, georgia bankruptcy, georgia divorce, 523(a)(5), 523(a)(15) debts in the nature of alimony and support [/tags] 

Alimony and marital property are assets that should be disclosed in your bankruptcy petition

The Georgia Supreme Court recently issued a decision in a divorce case called Benton v. Benton that has bankruptcy implications.  In this case, Mrs. Benton filed a Chapter 7 bankruptcy in the middle of her divorce case.  In her petition she revealed her pending divorce action but did not reveal on Schedule B (the personal property schedule) of her petition her right to alimony or property settlement.  For bankruptcy purposes, a right to receive money from any source is an asset.

After the bankruptcy case was closed, her husband asked the divorce court to deny his wife’s request for alimony and property settlement under the doctrine of judicial estoppal.  He argued that because the wife failed to reveal the existence of property (her right to alimony and her claim of a property settlement), she should be “estopped” from receiving this property in the divorce case.

After the husband made this argument, the wife filed a Motion to reopen her bankruptcy case to add these assets as property.  The Bankruptcy Judge approved the Motion.

The Supreme Court held that judicial estoppal was not appropriate because the wife had amended her bankruptcy to add the asset.

What should you take from this case?  First, you and your lawyer should think very carefully about what constitutes an “asset” for bankruptcy purposes.  Any claim you have to receive money is technically an asset.

Secondly, if you realize that you left something out, file an amendment to fix the problem.  Estoppel does not just apply in divorce cases.  I have seen it applied in car accident and medical malpractice cases as well.  If, for example you have been in a car accident but your case has not settled, your potential settlement is an asset of your bankruptcy estate and your failure to list that claim could result in a defense verdict.

Thanks very much to Atlanta attorney Scott Riddle for featuring this case on his excellent blog called the Georgia Bankruptcy Blog.  Scott’s blog reviews recent cases and developments in Georgia and the 11th Circuit.  It is well worth your time.  Scott is a bankruptcy litigator and has extensive experience in Chapter 11 business bankruptcy cases.

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