Archives for November 2013

Protecting co-owners of bank accounts when filing for bankruptcy

I was recently reminded why careful planning is needed to protect the rights of spouses and co-owners of bank  accounts when a bankruptcy is in the works, or even when creditors are suing. A client of mine had an account at Wells Fargo Bank. We were able to claim a substantial balance in the account as exempt. This should have meant that he would be able to keep that money as his own. However, as soon as the bankruptcy was filed, Wells Fargo took it upon themselves to freeze the accounts until the Trustee gave them instructions to release the money.

I think this tactic is of dubious legality but I understand that the few courts that have addressed this practice have not disapproved it. From now on,  all my clients will close their Wells Fargo accounts before filing bankruptcy!

But the more important point is that there are many ways a bankruptcy or a judgment can put money in the bank at risk.

Most bank loan documents have a clause that allows the lender to “offset” or seize any money the borrower has on deposit with the same lending institution if there is a default. Thus, if a client of mine has a bank account at Bank A, but also owes that bank money, I tell them to close the account to avoid precisely this happening. Some years ago, the U.S. Supreme Court approved a bank practice of making such an “administrative freeze” providing the bank promptly sought bankruptcy court approval.

Another problem area is joint accounts. Commonly, we see judgment creditors levying on such accounts in an effort to collect a judgment owed by one of the account holders. This is allowed. In New Jersey this happens when the Sheriff serves a Writ of Execution on the bank, without any prior notice.  The bank must then freeze the account. This then forces the co-owner to go to court to free up their money. In New Jersey, ownership of money in a joint account presumably belongs to the person who put the money there. However, going to court is expensive and time consuming. If a bankruptcy is filed, there is always a question whose money is in the account. I can usually document this and we have few problems but the potential for trouble still exists. So my advice is commonly for people in this situation to create separate bank accounts.

Like so much else, careful planning and the assistance of a knowledgeable adviser are critical to avoiding unexpected problems when dealing with debt issues.

Choosing the Right Bankruptcy Filing When You Owe Money to Your Ex-Spouse

Owe Money to Your Ex-Spouse?—Should You File Chapter 7 or Chapter 13?

Are you wrestling with unmanageable debt, including child support or alimony arrearages that weigh heavy on you? Have you wondered if those debts could be discharged or restructured in a Chapter 7 or Chapter 13 proceeding?

Domestic Support Obligations and Chapter 7

Under Section 507(a)(1) of the federal bankruptcy code, child support and alimony {also called “Domestic Support Obligations”} are given first priority in a bankruptcy proceeding, payable only after administrative costs of the bankruptcy. In Chapter 7, all Domestic Support Obligations, AND any other debts or obligations agreed to or imposed in a divorce judgment or settlement will not be discharged. Chapter 7, however, can be very useful if it eliminates other debt thereby making it easier to pay the Domestic Support Obligations. If there are assets available to pay creditors, Chapter 7 can result in the non-dischargeable DSO’s getting paid first.

Domestic Support Obligations and Chapter 13

Child support and alimony obligations also receive priority in a Chapter 13 reorganization. They must be paid in full over the 3 to 5 year life of the plan. You must also stay current on any ongoing support obligations during the bankruptcy period, and may lose all Chapter 13 protection if you fail to do so. If your Chapter 13 reorganization has not been approved, and you fall behind on current obligations, you risk denial of confirmation of your plan, conversion to a Chapter 7, or dismissal of your case.

The major advantage of Chapter 13 is that other divorce obligations besides DSO’s CAN be discharged in Chapter 13. This could include a payment to the ex-spouse required as part of a divorce property division between husband and wife.. These obligations become general unsecured debts receiving the same percentage payment as other creditors such as credit card obligations.

Planning and Timing are Critical.

Filing bankruptcy simply to make things more difficult for your spouse is usually ill-advised. But many a divorce has been made less difficult by using bankruptcy to relieve one or both spouses from debts that make it harder to meet family obligations. The interplay of family law and bankruptcy is complex and can be confusing. Early involvement of a qualified bankruptcy attorney with a knowledge of both areas is critical.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every bankruptcy client. Our partners have extensive experience in both bankruptcy and family law. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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