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 during the property 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.

Discoveries While Completing Expense Statement

The Bankruptcy Code requires the individual debtor to file a petition and a series of financial reports with the bankruptcy court.  Among these reports is a statement of income identified as “Schedule J.”  For many debtors, it may be the first time, or a first time in a long time, that the families’ monthly expenses have been written down and examined.  Usually there are surprising discoveries while completing this schedule. 

Several monthly expense items are easily determined.  Fixed monthly expenses like your mortgage or rent, auto loan payments, day care, insurance premiums, and cell phone bills are easy to identify.  Fixed monthly expenses are predictable and do not generally fluctuate from month to month.  

Unlike fixed expenses, variable expenses change from month to month.  A good example of a variable expense is an electric bill or transportation expense which may be higher during certain times of the year.  It is a good idea to average variable expenses over six months or a year to obtain a more accurate estimate of this monthly expense. 

Annual expenses are often overlooked.  Some annual expenses are quickly ascertained, like home owner’s association dues or personal property taxes.  Other expenses are much harder to estimate like out of pocket medical expenses.  Again, a yearly average is recommended to find this expense.

Discretionary spending may be the most difficult category to determine.  This category includes expenses like food, entertainment expenses and clothing purchases.  Bankruptcy debtors often underestimate discretionary spending and the debtor should either take a critical examination of their lifestyle and spending, or keep receipts for a month to accurately estimate this category. 

It is very important to accurately identify your monthly expenses on Schedule J.  In a Chapter 7 the bankruptcy court may use schedules I (monthly income) and J (monthly expenses) when considering whether you have sufficient income to afford the monthly payment proposed in a reaffirmation agreement.  In a Chapter 13, the debtor must show on Schedules I and J that there is sufficient income to pay creditors or the plan will not be confirmed. 

Completing your bankruptcy schedules is not a mindless check-the-box process.  The federal bankruptcy laws require you to accurately and completely disclose financial information to the court.  Not only must you make your best effort to provide truthful information, but it is in your best interest to use these forms to paint a picture of your financial situation that will help you get the relief that you need.  Carelessness and inaccuracies will cause delays and problems in your case. 

If are buried in debt, consult with an experienced bankruptcy attorney and discuss how the federal bankruptcy laws can help.  Your attorney will work with you to complete the bankruptcy petition and schedules carefully and accurately to get you the relief you need.

Keep Your Secured Property With A Reaffirmation Agreement

Occasionally a client is under a misconception that a Chapter 7 bankruptcy discharge will erase all creditor interests in secured property.  In other words, after the bankruptcy there is no house loan or car loan, and the debtor is able to keep the house or car.  

A Chapter 7 discharge acts as a permanent court injunction prohibiting the collection of debts incurred prior to filing the bankruptcy case.  The discharge order stops creditor action against the debtor personally - no more lawsuits, phone calls, or collection letters.  However, the creditor may pursue any legal claim against a debtor's property. 

To understand a collection action against a debtor's property (called an "in rem" action), let's examine a typical auto loan.  The creditor and the debtor enter into a contract wherein the debtor personally promises to make payments on the loan and the creditor promises to not repossess the car as long as these payments are made. The loan is secured by the auto and a lien is recorded with the state.  When a debtor receives a bankruptcy discharge, the creditor is prohibited from collecting on the contract, but the discharge does not (generally) extinguish the lien.  Consequently, the creditor can repossess the auto at the end of the bankruptcy case when done in accordance with state law.  The creditor may not sue the debtor to recover money on the contract. 

The general rule is that secured property must be paid for or returned to the creditor.  For this reason a reaffirmation agreement is often used during a Chapter 7 bankruptcy case.  A reaffirmation agreement is a new contract in which the debtor agrees to continue personal liability on a secured loan and the creditor agrees to not repossess the property.  The reaffirmation agreement continues the personal liability of the debtor, despite the bankruptcy discharge.  Reaffirmation agreements are only available to Chapter 7 debtors and the agreement must be executed before the bankruptcy discharge is entered.  The debtor can revoke the agreement with 60 days after the agreement is signed. 

Failure to timely execute a reaffirmation agreement causes the automatic stay to be lifted and the property is longer a part of the bankruptcy case.  The property then be repossessed by the creditor, even though you are current on the loan.  This situation recently was discussed last year in the Ninth Circuit Court of Appeals case Dumont v. Ford Motor Credit Company 

If you have an auto loan, home loan, or other secured property you want to keep after your Chapter 7 bankruptcy, discuss your options with an experienced attorney.  The federal bankruptcy laws offer many options for protecting property and your attorney can help you select the right decision for you and your family.

Lien Stripping Second Mortgages

While the Bankruptcy Code does not permit a bankruptcy court to modify the terms of a home mortgage, a second mortgage that is entirely unsecured may be stripped away during a Chapter 13 bankruptcy.  For example, if you own a home that is presently worth $200,000 and the first mortgage balance is 200,001, any additional mortgage lien may be stripped away since that debt is not secured by any value in the home.  The debt is reclassified as unsecured, is treated as unsecured during the bankruptcy, and is subject to discharge at the end of the case.  However, if the debtor does not successfully complete the Chapter 13 case, the lien stripping benefit is lost. 

The most important part of the lien stripping process is obtaining an accurate valuation of the property.  Most courts agree that the appropriate time for valuing the property is at the time of the Chapter 13 confirmation hearing, not at the time the bankruptcy case was filed.  This may be several months after you file your Chapter 13 case.  A professional appraisal and other evidence of the value of the property are necessary for successful lien stripping. 

Lien stripping may not require both debtors to file bankruptcy.  In a recently decided case in Michigan, a married couple owned property, but only the wife filed bankruptcy.  She then filed an adversary case against a lien holder to strip away an entirely unsecure second mortgage.  The lien holder attempted to join the husband to the lawsuit, but the bankruptcy court refused.  The court granted the wife's lien stripping motion saying that, since there was no equity,  the bankruptcy estate had no interest in that property.  Under Michigan law (and in many other states) a married couple holds a home jointly as tenants by the entirety.  This is a special legal ownership status where each party owns an undivided whole of the property, as a single legal entity.  The bankruptcy court found that both spouses do not have to be included in the lawsuit even though both spouses receive the benefit of the stripped lien.  This case is currently on appeal. 

In today's economy where many homes have lost value, lien stripping second mortgages in bankruptcy is becoming commonplace.  If you have a second mortgage and need bankruptcy relief, consult with an experienced bankruptcy attorney and discuss your options.  There are many ways to save your family home using the powerful federal bankruptcy laws.

Your Bankruptcy Discharge

The word bankruptcy is derived from two Latin words, bancus, meaning “bench,” and ruptus, meaning “broken.”  The term was used to describe the breakup of a tradesman’s business (often resulting in physically breaking the tradesman’s table or bench, signifying the end of the business).  Early bankruptcy laws were concerned with protecting creditors from insolvent businesses.  Usually this meant total liquidation of the business.  In some cases a creditor could have the tradesman imprisoned for non-payment of a debt. 

Modern bankruptcy law in the United States is more forgiving and promises the individual creditor a fresh start.  The United States Bankruptcy Code is enacted by Congress via authority granted by Article I, Section 8 of the United States Constitution.  United States bankruptcy laws have evolved to protect the honest, but unfortunate debtor and provide a discharge of overwhelming debts.  Debtor’s prisons were abolished in the United States. 

The cornerstone of the bankruptcy fresh start is the bankruptcy discharge, a permanent court injunction that prohibits creditor collection against the debtor.  The bankruptcy discharge is available to individual debtors and is generally ordered at the end of the bankruptcy case.  A discharge is not available to a non-individual, like a businesses or corporation.  The discharge order forbids creditors from contacting the debtor to collect on a debt, or taking legal action against the debtor personally.  The bankruptcy discharge is very broad and is enforced through a contempt action with the bankruptcy court. 

Certain debts are not affected by the bankruptcy discharge including child support obligations, debts obtained by fraud, criminal fines or restitution, most student loans, and certain taxes.  While these debts are non-dischargeable for policy reasons, other common debts like medical bills and credit card debts are discharged by the bankruptcy.  The Bankruptcy Code offers certain protections to the debtor to repay non-dischargeable debts during a bankruptcy case. 

If you are struggling with debts and need a fresh start, discuss your options with an experienced bankruptcy attorney.  The modern bankruptcy law offers many legal options for paying or discharging personal debt.  Learn how a bankruptcy discharge can start you on a path to a fresh financial start.

Real Housewife Facing Real Trouble In Bankruptcy Court

There is an old saying in the bankruptcy world, “Pigs get fat, hogs get slaughtered.”  It means the honest, but unfortunate bankruptcy debtor will keep enough property to live comfortably and then some.  On the other hand, when the debtor conceals assets, hides income, or attempts to keep more than legally entitled, the bankruptcy process may serve up the hoggish debtor on a silver platter. 

We may be witnessing a good old fashioned hog roast in the media.  Teresa Giudice, star of the Bravo television show The Real Housewives of New Jersey, is embroiled in a fight with a New Jersey bankruptcy trustee.  Teresa and her husband Joe filed for Chapter 7 protection in late October, 2009, but have yet to receive a discharge from the bankruptcy court.   

On June 30, trustee John W. Sywilok filed an adversary complaint seeking to deny the Giudice’s bankruptcy discharge.  The trustee alleges that the Guidices “concealed documents, records and papers from which the Defendant's financial condition or business transactions could be ascertained.”  The trustee also complains that the Guidices failed to disclose financial or ownership interests in several businesses, including a pizza parlor and a Laundromat, as well as a book written prior to the bankruptcy.   

Recently the trustee produced documents showing that the Giudices when on a $60,000 shopping spree before and after filing bankruptcy.  During court testimony reported by the New York Post, Sywilok claimed that over $45,000 worth of furniture was purchased, and $11,000 of that just two days before filing bankruptcy.  

The trouble the Giudices face with the bankruptcy court is very real and very serious.  If the court determines that assets or income were intentionally concealed, the debtors may be denied a discharge.  An auction of assets has been ordered by the bankruptcy court, so a denial of discharge will mean that the Giudices lose their property, creditors will receive the proceeds of the auction (including a substantial payment to the trustee as compensation), and any remaining debt will survive the Chapter 7 case.  Consequently, the Giudices may face additional state court litigation on their debts and garnishment of future earnings.  If the case is egregious enough, the bankruptcy court may refer the case to the Department of Justice to investigate possible bankruptcy fraud, a federal criminal act.   

Regardless of the outcome, the Giudice case is an excellent example of how not to act before and during your bankruptcy case.  If you need relief from your debts and are willing to deal honestly and fairly with the trustee and your creditors, bankruptcy can discharge your debts and give you a fresh financial start.  Consult with an experienced bankruptcy attorney today and discover how the federal bankruptcy laws can help you and your family.