Can One Spouse File Bankruptcy Alone?

While it is common for a husband and wife to file a joint bankruptcy, in some cases it may be beneficial for only one spouse to file.  When one spouse files for bankruptcy protection, the other spouse is not automatically joined into the case.  The husband and wife are treated separately and individually, although there are some consequences to the non-filing spouse, both positive and negative. 

Filing separately can have several advantages to a husband and wife who have separate property and debts.  It is especially appropriate when there is a large debt that only one spouse is liable to pay, and the parties are able to either protect their marital property through exemptions or by virtue of the non-filing spouse holding the property as non-joint property.  Property in which the debtor has no ownership interest is generally not property of the debtor’s bankruptcy estate and beyond the reach of the bankruptcy court. 

While the bankruptcy automatic stay will stop collection action against the debtor, this protection does not apply to protect a non-debtor.  In a Chapter 7 case, a creditor may still collect on a joint debt from the non-filing spouse.  In a Chapter 13 case, the bankruptcy code imposes a co-debtor stay that generally prohibits collection on joint debts during the bankruptcy.

Likewise, the discharge order at the end of the case will only apply to bankruptcy debtor.  The discharge does not prevent collection on any joint debt from the non-filing spouse.  Most joint debts are the result of a contract or the agreement of the husband and wife to pay a debt, however in some limited cases a statute or other circumstances may make both parties liable for a debt.  If you have any questions concerning whether you or your spouse is liable for a debt, consult with your attorney. 

Property may be protected through state or federal law exemptions, or the property may be excluded from the bankruptcy estate when the bankruptcy debtor has no ownership interest.  Property that is held jointly and cannot be protected by exemption laws may be at risk for turn-over to pay creditors in a Chapter 7 case. 

The decision to file bankruptcy for one or both spouses can require a complex analysis of the separate and joint property and debts of each spouse.  Every case is different and while some cases gain a benefit from filing jointly, other cases receive a greater benefit from a separate bankruptcy.  If you are in a situation where a separate bankruptcy filing may benefit your family, consult with an experienced bankruptcy attorney and discuss your options.  The federal bankruptcy laws offer many choices for individuals needing debt relief and your attorney can help you decide the best financial decision for your family.

Can A Discharged Debt Be Repaid?

At the conclusion of almost all consumer bankruptcy cases the debtor will receive an order from the court that discharges the debtor’s personal obligation to pay certain debts.  This discharge is a court injunction prohibiting creditors from taking collection action to collect on discharged debts.  Violation of this injunction may result in a contempt of court charge and serious penalties. 

But what if you have a debt that you want to pay even after it is discharged? 

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.”  11 U.S.C. § 524(f).  You are free to make voluntary payments on all or part of your discharged debts.  These payments do not invalidate the discharge order and do not create a new legal obligation.  The creditor is still prohibited from contacting you in any way and cannot take any collection action against you, including sending you a bill or even encouraging your continued payments.  In this case the term “voluntary” means free from creditor influence or inducement. 

Any payments you make on a discharged debt are the result of a moral obligation as the legal obligation to pay the debt has been discharged by the bankruptcy court.  In a Chapter 7 case, you are free to pay whomever you want.  “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.”  In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985). 

If you are interested in making voluntary repayments after your discharge, discuss the matter with your bankruptcy attorney.  While there are generally few down-sides to voluntary repayment, your bankruptcy attorney can discuss the pros and cons with you and help you reach the right decision for you and your family.

How Long Will My Chapter 7 Bankruptcy Take?

The typical Chapter 7 bankruptcy case will take three to four months.  The Bankruptcy Code has established certain deadlines during a Chapter 7 case that dictate how long the case must remain open.  Additionally, delays by the debtor, the trustee, creditors, or even the bankruptcy court can prolong a case. 

Most debtors are confused as to when the bankruptcy case is finished.  There are actually two different events that happen near the end of a Chapter 7 case: the discharge and the closing of the case.  The discharge is a permanent injunction entered by the bankruptcy judge prohibiting certain creditors from collecting from the debtor personally.  The discharge injunction is ordered near the end of the case, but cannot be entered until after the last day for creditors to file objections has passed.  That day is set by the Bankruptcy Code as 60 days after the date first scheduled for your 341 Meeting of Creditors.  The date is also listed on the 341 meeting notice. 

While the bankruptcy court may enter the discharge order before the case is closed, your case is not finished until a final order is issued closing the case.  When there are no assets to distribute, the bankruptcy court will often enter the discharge order and the order closing the case on the same day.  If there are assets to distribute or objections to the discharge of a debt, your case may remain open for several months.  Statistically, only one in twenty five Chapter 7 cases have assets to distribute to creditors.  The typical Chapter 7 case is discharged and closed soon after the objection deadline passes. 

Your Chapter 7 case will likely take between three to four months from start to finish.  One of the main advantages in hiring an experienced bankruptcy attorney is the benefit of the attorney’s efficient processes that will take your case from start to finish without complication. Your attorney can identify and correct potential problems before you file your case, and avoid any delays getting you the relief you need.  If you are considering bankruptcy, consult with an experienced bankruptcy attorney and discover how the federal bankruptcy laws can help you.

What If You Forget A Creditor?

Usually by the time a person visits a bankruptcy attorney he has been struggling with overwhelming debt for months if not years.  Often the person’s creditors have not been paid for a considerable time.  It is not surprising that occasionally a person will forget to list a creditor in the bankruptcy paperwork.  

If an omitted creditor is discovered during the bankruptcy case, the law requires the debtor to file amended schedules and identify the creditor.  The debtor has an obligation to ensure all creditors are identified and receive notice of the bankruptcy case.  Intentionally failing to list a creditor can cause that debt to be declared non-dischargeable and survive the bankruptcy. In extreme cases the bankruptcy court may deny a discharge altogether. 

Sometimes even the most diligent debtor will forget a creditor.  Things get trickier if the omission is discovered after the bankruptcy case has closed.  How the debtor proceeds will depend on the court and the circumstances.  In many cases an omitted creditor is considered discharged as a matter of law.  If an unsecured creditor did not receive notice of the bankruptcy, but none of the debtor’s assets were distributed to creditors, many bankruptcy courts say the omission did not have any practical effect.  In these cases it didn’t matter that the creditor did not receive notice, the debt is discharged anyway. 

Conversely, if an omitted creditor loses the opportunity to receive money through the bankruptcy, the omission matters a great deal.  Under these circumstances the failure to include the creditor means the debt cannot be discharged and the debtor is stuck with paying the debt. 

If you discover an omitted creditor during or after your bankruptcy case, inform your attorney immediately.  You and your attorney can discuss the proper procedure for dealing with an omitted creditor.

How Often Can I File Bankruptcy?

Filing bankruptcy is a difficult decision, but sometimes life dictates choices to us.  Financial disaster can blind-side any of us, like a job loss or medical catastrophe.  Whatever the reason, individuals occasionally need the protections of the federal bankruptcy laws a second time. 

An individual can ordinarily file a bankruptcy case at anytime, however there may be restrictions on the relief that is available.  The most common restriction is the eligibility to receive a bankruptcy discharge.  To receive a Chapter 7 discharge, you must file your case eight (8) years after your previous Chapter 7 case was filed, or six (6) years after your Chapter 13 case was filed.  To receive a Chapter 13 discharge, you must file your case four (4) years after your previous Chapter 7 case was filed, or two (2) years after your Chapter 13 case was filed. 

In some cases, receiving a bankruptcy discharge may not be important to the debtor.  For instance, if a debtor has a non-dischargeable debt like child support or taxes that must be paid, bankruptcy can offer an organized process for payment while the debtor retains some control. 

Another less common restriction concerns the automatic stay.  If your bankruptcy case is dismissed within the past year, the bankruptcy court assumes that your second bankruptcy is filed in bad faith.  The automatic stay will only apply for 30 days after your second filing.  A hearing is required to extend the automatic stay and you must convince the court that you have filed in “good faith.”  If you file two or more cases within the past years, you must petition the bankruptcy court for a stay – it is not automatic for any period of time. 

Finally, you are not eligible to file at all if your case was dismissed by the bankruptcy court within 180 days due to a willful failure to obey an order of the bankruptcy court, or if your case was voluntarily dismissed after a creditor sought to lift the automatic stay to enforce a lien against your property. 

Filing a second bankruptcy is not uncommon.  Congress has established a few additional rules to deter abusive serial filers, but bankruptcy protection is available for the honest yet unfortunate debtor.  If you need assistance with filing a second bankruptcy case, contact an experienced bankruptcy attorney and get the relief you need.

What Happens When You Walk Away From A Home Loan?

Deciding to walk away from a family home is a gut-wrenching decision.  Before walking away the prudent person will investigate all of the options, including returning the property to the lender (i.e. a deed-in-lieu of foreclosure), a short sale, or renting the property.  Unfortunately, for some walking away is unavoidable, so it is important to know the repercussions. 

The first concern is safeguarding the property.  Maintaining insurance and basic utility service is important until possession (and in some cases ownership) of the house is transferred.  Should you fail to safeguard the property, you may be liable to the lender for damages. 

Next, once transfer of title is accomplished (usually through a foreclosure proceeding), the bank may sue you for breach of contract and damages.  Sometimes the bank will wait until after it fully realizes all of its damages upon sale of the house, then it will sue for the difference between the amount it recovers and the amount you owed.  This is called a deficiency balance and it is recoverable by the lender in most states. 

The bank may also forgive the debt difference and issue you an IRS Form 1099C.  When this happens the bank is telling the IRS that it has given you a “gift” in the amount of its loss (because you don’t have to pay it back) and you owe income tax on the “gift” amount.  You have two options to avoid paying the tax debt: bankruptcy, or the insolvency exclusion in the tax code.  The insolvency exclusion requires that you prove that your liabilities exceeded the value of your assets.  By filing bankruptcy this type of tax debt will be discharged. 

Congress has granted a reprieve from tax debts stemming from the sale of your primary residence.  The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) provides that taxpayers do not owe taxes on mortgage debt that was forgiven by the lender.  The law only applies to deficiencies during the 2007, 2008, and 2009 tax years. 

Finally, walking away from your home will have negative consequences to your credit report.  The possible negative items include 120 day late entries, foreclosure, and debt write-off.  All of these items have a devastating impact on your credit report and, consequently, your credit score. 

If you are contemplating walking away from your home, get the facts!  Investigate your options from a qualified bankruptcy attorney.  Only a bankruptcy attorney will be able to explain your options including those available under the bankruptcy laws.

Can Bankruptcy Stop A Rental Eviction?

A person’s financial situation is often desperate by the time a bankruptcy is filed.  In some circumstances the rent is past due and the debtor is facing eviction.  Fortunately, the bankruptcy laws can help many debtors stay in their homes, at least temporarily. 

Generally, when you file a bankruptcy petition all collection actions are automatically stayed.  The purpose of this stay is to give you some breathing room and time to sort out your financial difficulties.  If you are behind on rent payments, the bankruptcy automatic stay stops the commencement or continuation of an eviction action.  The automatic stay prohibits your landlord from any attempt to collect rents that accrued prior to the bankruptcy filing date.  Your landlord may not write or call you in an effort to collect these rents, and may not start or continue a lawsuit to evict you. 

The bankruptcy automatic stay will not relieve you from your obligation to pay rent after the bankruptcy filing date.  If you fall behind on your rent payments after the bankruptcy is filed, your landlord may evict you regardless of the bankruptcy, but cannot seek payment of past rents.  If you are not behind on rent at the time the bankruptcy case is filed, your landlord is not a creditor and will not receive notice of your bankruptcy filing.  However, you must account for any rent deposit on your bankruptcy schedules. 

In some circumstances a landlord may complain to the bankruptcy court that the tenant is endangering the property or using controlled substances illegally on the property.  The landlord must file a certification to the bankruptcy court and the tenant has 15 days to respond.  The court must hold a hearing within 10 days.  If the landlord is successful in this complaint, the court will lift the automatic stay and allow the eviction process to continue. 

If your landlord has obtained a judgment for possession and order of eviction before you file bankruptcy, the legal process is more complex.  You must deposit one month of rent to the bankruptcy court immediately upon filing the bankruptcy petition along with a certification stating that your landlord’s judgment permits you to stay in the premises upon satisfaction of the entire judgment amount.  This filing stays the eviction process for thirty days.  If you wish to remain longer, the amount stated in the judgment for possession must be paid within the thirty day period. 

Bankruptcy can stop an eviction and give you time to move or make arrangements to stay.  If you are facing eviction from your rental home and contemplating bankruptcy, discuss your situation with an experienced bankruptcy attorney.

Who Will Know About My Bankruptcy?

Filing bankruptcy is a very personal process.  Many clients worry that their friends and neighbors will learn about their bankruptcy.  A common question is, “Who will know about my bankruptcy?” 

First, personal bankruptcy cases are generally not reported in the local newspaper.  Unless you are a celebrity or public figure, your bankruptcy is not newsworthy.  More than 1.4 million consumer filings were recorded last year, so many larger newspapers would have to publish thousands of bankruptcies in their papers each month.  It is not cost-effective for a newspaper to search through the bankruptcy court records to find individuals who filed in their distribution area and use valuable print space to report on personal bankruptcy cases. 

Second, the bankruptcy laws require notices of the bankruptcy filing to go out to the following: 

1. Everyone you owe money (called “creditors”);
2. The bankruptcy trustee;
3. Co-signors and co-debtors; and
4. You and your attorney. 

Under special circumstances other notices are sent, for instance if you owe taxes, or if you want to terminate a lease or contract.  Family, neighbors, friends, your employer, your bank, etc. will generally not receive notice of your bankruptcy.  A common exception to this general rule is when the debtor causes a voluntary wage withholding to pay chapter 13 plan payments. 

Third, while bankruptcy court proceedings and trustee meetings are open to the public, it is unusual for the press or members of the public to attend.  Most of these meetings are very brief and can even be a little boring. 

Finally, other than receiving notice of the bankruptcy filing from the bankruptcy court, there are only a few ways to learn of a bankruptcy case.  The most common way is to contact the bankruptcy court directly.  Most bankruptcy courts have an automated telephone system that will provide basic case information to the public. 

Filing a bankruptcy petition is generally a private and confidential process.  While there are no guarantees that your friends and neighbors will not learn about your bankruptcy, chances are they will not unless you decide to tell them.  However, every case is different.  If you have specific questions about the effects of filing bankruptcy, consult with an experienced bankruptcy attorney.

Can I Have Money in a Bank Account When I File Bankruptcy?

The two most common types of consumer bankruptcies are Chapter 7 and Chapter 13.  In a Chapter 7 all of the debtor’s property is placed into an estate which is controlled by the bankruptcy trustee.  While no property physically changes hands (at least not at the beginning of the case), the trustee and bankruptcy court have broad legal power over your property.  If you have money in a bank account on the day you file, your bank account and money are assets of the bankruptcy estate.  You are no longer free to transfer funds or assets as they now belong to the bankruptcy estate. 

Take for example that you have $5,000 sitting in your checking account on the day you file bankruptcy.  That money is property of the Chapter 7 bankruptcy estate and is no longer yours to control or use.  If you take the $5,000 out of the bank the day after filing to pay your mortgage payment and other bills, the Chapter 7 trustee can seek to recover those funds, either from you or from the payee. 

During a Chapter 13 bankruptcy the debtor retains possession and control over his or her property, and is free to use any funds in the debtor’s bank account.  An accounting is performed and the debtor’s property is classified as either exempt or non-exempt.  Non-exempt property is not taken from the debtor (as is often the case in a Chapter 7), but the Chapter 13 debtor is required to pay unsecured creditors a sum equal to the amount of non-exempt equity.  For instance, if there is $5,000 in the debtor’s bank account, the debtor may only be able to exempt a portion of the entire sum.  The non-exempt portion must be paid to the creditors through the debtor’s Chapter 13 plan (over three to five years). 

Cash in a bank account can be a problematic issue for a debtor.  Avoiding these problems is the joint responsibility of the debtor and the debtor’s bankruptcy attorney.  Timing is critical to minimizing your financial exposure.  An experienced bankruptcy attorney can help you maximize the benefits of the bankruptcy laws and navigate around any pitfalls.

Will I Lose My Tax Refund by Filing Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a repayment plan that lasts three to five years.  During that time the debtor is required to devote all disposable income to the repayment of debt.  Most bankruptcy trustees and courts consider tax refunds part of the debtor’s disposable income that is over-withheld and should be paid into the Chapter 13 plan.  However, instead of reducing the amount payable under the debtor’s plan, tax refund money is paid to unsecured creditors that would otherwise not be paid.  If the debtor is paying a 100% repayment plan, the trustee will not request turnover of any tax refunds.

Some courts have approved a provision in the Chapter 13 plan that requires the Internal Revenue Service to forward any tax refund to the trustee’s office.  However, at least one bankruptcy court has found this practice to be unlawful.  In United States v. Carroll, No. 2:09-cv-13505 (E.D.Mich. Jan. 20, 2010), the bankruptcy court concluded that the IRS was not a party to the debtor’s chapter 13 case and did not have an opportunity to object to the plan.  Additionally, as a part of the United States government the IRS possesses sovereign immunity that it did not waive. 

Keeping your money and avoiding an income tax turnover may be as simple as adjusting your paycheck withholding.  By speaking to a tax professional you may be able to predict your tax liability and put more money in your pocket each payday.  However, be careful to avoid a situation where you do not withhold enough taxes and end up with a large tax bill at the end of the year. 

If your tax refund is largely due to an Earned Income Tax Credit (EITC), the IRS allows tax payers to request an advance payment of the EITC.  Information regarding this advance payment program can be found on the IRS website.   If you qualify, your employer will add additional money to your take-home pay each paycheck. 

If you want to avoiding surprises during your Chapter 13 bankruptcy, seek out and hire an experienced bankruptcy attorney.  An experienced bankruptcy attorney can discuss your financial situation with you and help you keep your hard-earned money for your family.

Next Page »