Archives for July 2015

Filing Chapter 7 Before a Divorce

The Consequences of Filing a Chapter 7 Petition before a Divorce

Distressed manUnfortunately, one of the commoner causes of divorce is financial difficulty. Conversely, divorce is often a contributing factor to a bankruptcy filing. As a consequence, it’s not that unusual that a party to a divorce also becomes a party to a bankruptcy. But which should come first, particularly if you are seeking to discharge debts permanently under Chapter 7? The short answer: it all depends, but making the wrong decision can be disastrous.

A Chapter 7 bankruptcy filing can be extremely attractive to many people, as it allows you to wipe out certain debts, subject to the sale of property with non-exempt value. Whether you want to file a Chapter 7 before or after your divorce will depend on many factors and requires a careful analysis by an attorney working with your divorce attorney. Here are some of the questions that need to be answered:

  • How much debt do you have?
  • How much is joint debt?
  • What are your and your spouse’s income situations?
  • Will there be alimony or support to be paid? Will this be made easier by a discharge of other debts?
  • What property do you own? Who is going to get what as part of any property division?
  • Do you or your spouse have any ability to pay debts over and above support payments and basic living expenses?
  • What are the risks and benefits of a bankruptcy filing to each party? Does it make sense to wait until after the divorce is final?
  • Are the spouses cooperative or antagonistic? Realistic about their financial prospects?
  • Should a joint bankruptcy be filed? (If so, it is likely at least one spouse will have to have a separate bankruptcy attorney involved to review what is being prepared and submitted)

One of the more expensive and time-consuming aspects of a divorce can be the division of marital debts. If you have credit card or similar debt when you file for divorce, you can spend a lot of time and money litigating who will be responsible for what part of that debt.

If there is property with significant value to be divided in the divorce (other than pensions) careful consideration needs to be given to waiting until after the divorce is final. On the other hand, if you file for protection under Chapter 7 before your divorce is final, you may be able wipe out all credit card debt and significantly reduce the expense of completing your divorce. But if this leaves your spouse jointly liable after your bankruptcy discharge, the problems may not go away.

When and how to file a bankruptcy when a divorce is involved is complex. Filing a bankruptcy at the wrong time might easily backfire. A bankruptcy exposes all your financial dealings to scrutiny. Filing in order to get back at a spouse is generally a poor reason to file a bankruptcy; indeed, we have had cases where the spouse’s bankruptcy benefitted our client (the non-filing spouse) greatly.

If there is collusion in dividing property in a lop-sided fashion to avoid paying creditors, a bankruptcy can open up the entire process of negotiations to unwanted scrutiny by a bankruptcy trustee, and possibly a lawsuit to get back property fraudulently transferred. This is one of the considerations that a thorough review by a qualified bankruptcy attorney will deal with.

In a bankruptcy, unpaid alimony, support or other Domestic Support Obligations get highly favorable treatment. These debts cannot be discharged, and once a bankruptcy is filed, you will have to remain current on them.

The best course of action is to consult with an experienced bankruptcy attorney who is also knowledgeable about your state’s divorce laws. (Our office has extensive experience in both areas). The first meeting should not include your spouse or his attorney, but having your divorce attorney sit in may be a very good idea.

Handled properly, a bankruptcy may well ease the difficulty and expense of a divorce, benefitting everyone. Handled wrong, it can make a bad situation significantly worse for everyone involved.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney.

For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Filing Chapter 13 Before a Divorce

Filing Bankruptcy Before or during a Divorce?

Studies regularly show a connection between divorce and bankruptcy. Many people file for bankruptcy because of the financial challenges posed by divorce. Likewise, the underlying cause of many marital breakups is financial instability. If your marriage is in trouble, but you are also facing financial challenges, you want to give serious consideration to the potential benefits of a bankruptcy filing.

We generally counsel against filing a bankruptcy while a divorce is pending, but sometimes this is necessary. Doing this in hopes of “derailing” a divorce judgment or property distribution is usually fruitless or a practice that can backfire.

The interplay of bankruptcy and divorce is extremely complex and fact-sensitive. However, early review and consideration of the bankruptcy alternative for one or both spouses is a very good idea. That said, there are a few points that are generally valid.

First, unless you and your spouse have already worked out all the terms of an agreement, an ethical bankruptcy attorney will not represent both of you. Even where a joint bankruptcy filing is anticipated, separate counsel may be needed. Of course, one could do the primary and major work with the other providing independent review.

Second, a bankruptcy will not stop or protect the debtor from ongoing support or alimony obligations. It will not stop the entry of a judgment of divorce, or a family court’s deciding issues of custody or visitation.

Third, arrangements with your divorce attorneys for payment of their fees are fraught with difficulties and problems. This will need careful review.

Fourth, in a Chapter 13 case, equitable distribution obligations that involve payment of money (as opposed to distribution of property) can be discharged. In Chapter 7, this is not the case.

Fifth, timing is critical. A bankruptcy filing before a divorce is filed can potentially alter the outcome of a later property distribution, for good or ill depending on your point of view.

Sixth, the terms of a property settlement agreement or divorce judgment may end up taking certain debts out of discharge.
If you are in this situation, it is never too soon to consult with knowledgeable bankruptcy counsel. We recommend that you and your divorce attorney (if you have hired one) come in together to review the issues and strategies. If it then appears that a cooperative approach between husband and wife makes sense, those arrangements can be made.
At Neuner and Ventura LLP, we are in the unique position of having years of experience with both bankruptcy and divorce matters.

Contact Our Office

At Neuner & Ventura, LLP, we work hard to alleviate the stress, anxiety and confusion that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call us at 856-596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

NY Fed Study shows that for those drowning in debt, a bankruptcy results in a faster improvement in credit scores

A February 2015 study by the Federal Reserve Bank of New York looked at households in financial distress who are in or descending into insolvency,  and compared the results of their filing bankruptcy vs not doing so. Insolvency after the 2005 Bankruptcy Reform. Most of these households were facing lawsuits or collections, unpaid medical bills, and not enough money to pay these debts. Surprisingly, after a year to a year-and-a-half, those who filed bankruptcy had better credit scores and better access to credit!

Here is what the study found:

  • “both the balances in collection and the fraction of individuals with court judgments grow after insolvency for individuals who do not go bankrupt, whereas bankruptcy filing immediately stays collection efforts and court judgments”
  • individuals who filed bankruptcy had better access to new credit, opening “a larger number of new unsecured accounts.” NOTE: this does not account for how favorable or unfavorable the credit terms were. Most likely these are high interest credit card accounts. Because a bankruptcy discharge bars another bankruptcy discharge for 4-8 years, this makes sense,  as compared to those with unmanageable debt.
  • For those who were “newly insolvent… the individuals who do go bankrupt have lower credit scores than those who do not go bankrupt, which is consistent with them having a higher default risk”
  • BUT  by a year post-bankruptcy,  “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy, whereas the recovery in credit score is much lower for individuals who do not go bankrupt. “

This coincides with what we have been saying for a long time. A bankruptcy may be a better option for those who are drowning in debt with no realistic prospect of turning things around. Either way, the goal is to get back to financial stability and financial health.

Too many people put off consideration of bankruptcy as an option, and end up making things worse for themselves and their families.

The starting point is a consultation with a qualified bankruptcy attorney who will take the time to help you review your budget and your options. Properly done, this easily takes an hour.

Whether or not bankruptcy is right for you, our firm is available to help.

 

Losing the Automatic Stay in Bankruptcy

When you file a petition in bankruptcy, whether in Chapter 7 or Chapter 13, (and if you are not disqualified as a “repeat filer”) you are immediately entitled to the protection of the Automatic Stay. The Automatic Stay is contained in the US Bankruptcy Code, and prohibits creditors from writing, calling, suing or continuing suits or collection action, or taking any other action (outside of the bankruptcy proceeding) to collect a debt. The automatic stay remains in effect until your bankruptcy discharge, with some exceptions. Here are the ways you can lose the protection of the automatic stay.

A Creditor Successfully Asks the Court to Remove the Stay

A creditor can always file a motion the bankruptcy court to lift the automatic stay “for cause”. The most common reasons are a default or arrears in payment. Also, if the lender can show that it is not “adequately protected” by its collateral, that may suffice. The most common circumstance for individual debtors is a failure to maintain insurance on a vehicle or other property where this is required under the loan documents.

If the Court vacates or “lifts’ the automatic stay, the creditor is then free to repossess or foreclose on the property and otherwise protect its interest. However, the creditor is generally not permitted to sue a debtor personally (except as a defendant in a mortgage foreclosure or similar legal action aimed at recovery of collateral). It can only proceed to recover its property.

Filing a Repeat Bankruptcy Within a Year of a Prior Petition

If you had a prior bankruptcy proceeding that was dismissed (other than because of disqualification under the Means Test or “substantial abuse “ provisions of Code section 707(b)) within a year of the current filing the automatic stay only lasts for 30 days. To keep it in place for longer than that, you must file a motion to extend it, and that motion needs to be heard and granted within 30 days. In other words, if you are in this situation, you and your attorney had better work fast.

If you had more than one such case dismissed in the preceding year, or if the dismissal was because you did not comply with a court order or the terms of a confirmed Chapter 13 plan, it is even tougher to get the protection of the automatic stay. First, the stay does not go into effect at all until the court orders it. Furthermore, the burden is on you to show that court that you are now acting in good faith deserve the automatic stay as being in the best interest of creditors. The bankruptcy court may extend the period of the stay under limited conditions, if it determines that the current filing is in good faith.

Missing Deadlines for Filing Statement of Intention

If you have secured debt in the bankruptcy, you must prepare and present to creditors a Statement of Intention, which advises creditors what you plan to do with the collateral. You must file the Statement of Intention within 30 days of filing your bankruptcy petition. If you do not, the automatic stay may be lifted.

The Automatic Stay is one of the most important and fundamental protections that a bankruptcy affords. There are many other situations where it may be at risk. Protecting yourself and the protection of the Automatic Stay requires the advice and representation of a qualified, experienced and diligent attorney.

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 client. 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.

Representing Clients across South Jersey

Seniors in financial trouble recommended to consider using bankruptcy to help protect assets.

A recent New York Times article,  Bankruptcy Can Help Seniors Protect Assets, NY Times, June 30, 2015, makes a point that I have been making for years. Those in or near retirement need to be concerned about preserving their ability to support themselves as they age, and that means protecting the assets that make self-support possible.

Instead, I have seen too many people deplete IRA’s or retirement accounts to pay creditors. These accounts are protected from creditors and in bankruptcy (special rules protect all IRA’s in New Jersey. In other states the protection is there but more limited). Social Security income is also protected. Using up retirement funds means there will be less income or resources to meet our personal or health needs as we age.

While paying debts is laudable, it is a fools errand if the result is to make one destitute, or to leave debts for our estate to clean up after we die. A concern over one’s credit score should be less of a concern: with a fixed income, seniors should not be borrowing money that may not be paid back.

The starting point, as always, is a clear headed look at the available income and necessary living expenses. If one can afford to pay the debts one has while having a reasonable cushion for the inevitable unexpected expenses, a debt management plan may be best.

Even here, be leery of firms that promise to settle all your debts for a fee. Non profit organizations should be preferred.

Whatever the situation, a careful review with a qualified bankruptcy attorney is always in order. Knowing the options available is a wise first move. Whether or not bankruptcy makes sense for you, knowing what is available provides a good baseline to evaluate other options, and the relative short-term and long term costs they involve.

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