If your ex-spouse files for personal bankruptcy, how can it affect you?

If you are divorced and your ex-spouse files for bankruptcy, you will probably be concerned about how that will affect you.

In general, your ex-spouse’s legal obligations to you shouldn’t really change.

For example, debts for unpaid spousal support (alimony) and child support cannot be discharged in bankruptcy.  So, your ex will still be responsible for those payments.  In fact, the bankruptcy could possibly be helpful to you.  For example, if your ex-spouse files a chapter 7 bankruptcy and has any non-exempt property, it’ll be taken by the bankruptcy trustee who’ll then sell the property and pay out the proceeds to the creditors.  Not only are you considered a creditor, but you have a higher priority than all other unsecured creditors.  That means that you would get paid before anyone else.  Also, if you ex-spouse files a chapter 13 bankruptcy, the plan must include the on-going scheduled support payments and past due amounts are paid through the plan, directly from the trustee to you.  Even so, there is one negative aspect of a chapter 13 – after the term of the plan (which is usually 5 years) any unpaid support still remaining might be discharged.  Still, at least during the plan period you’ll be receiving the scheduled amounts and probably some of the past due amounts.

Your ex-spouse’s on-going obligations for spousal and child support also remain in place, despite a chapter 7 bankruptcy.  So, if he or she is making periodic payments to you, those must continue.

Finally, if your judgment of divorce (or property settlement agreement) obligates your ex-spouse to pay off certain debts, he or she can’t discharge such debts in bankruptcy.  For example, if you and your ex had joint credit card debt and your divorce judgment requires your ex to payoff that debt, he or she must do that.  In most cases, if a person files for bankruptcy, that person no longer legally liable for the debt and only the joint debtor remains responsible.  Nonetheless in this instance, your ex remains liable to you for the debt because property settlements are not dischargeable.  As an aside, even though these are not dischargeable, it could still be in your best interest to file an objection to discharge to make sure it is handled correctly.

So, legally, your ex-spouse remains liable to you no matter his or her bankruptcy.  However, in the real world, your ex-spouse’s bankruptcy might still cause you some sleepless nights.  For one, child and spousal support that is withheld from your ex’s paychecks may stop temporarily when the bankruptcy is filed.  This will not last, but may interrupt your cash flow.  Also, although your spouse remains liable to you under the property settlement, any joint creditors are not going to care about that.  As far as they’re concerned, they can’t go after your ex because of their bankruptcy, but they can still legally go after you as a joint debtor.

So, if your ex doesn’t make payments on that joint debt, you will be harassed by the creditors to pay.

If you do pay, it’s then up to you to collect from your spouse.

Contact a Bankruptcy Attorney in Bay City Michigan from the list on our web site.

Bankruptcy and Divorce

If you’re thinking about both bankruptcy and divorce (sadly, there is often a link between the two), which should you do first?  To figure this out, there are several things to think about.

Primarily, if you file for personal bankruptcy before you file for divorce (or at least before your divorce is final), you and your spouse can file together.  The primary advantage to that is an overall savings in money.  If you’re both going to file personal bankruptcy anyway, filing together means only 1 attorney bill and one filing fee.  Obviously, if you each file separately, you’ll both pay your own lawyer fee and separate filing fees.  Each filing fee alone is $299 (for a chapter 7 bankruptcy) and your individual lawyer costs will in all likelihood be around $1000 or more.  So, a joint filing is a substantial savings for someone who is already strapped for cash.

If all or most of your marital debt is in your name independently (not joint with your spouse and your spouse does not have a lot of debt only in his/her name), you could be the only one who needs to file for bankruptcy.  Then the cost is not a deciding factor in the timing of your filing.

Also, a joint bankruptcy filing requires you and your soon-to-be ex to go to the meeting of the creditors together.  So, if you can’t be in the same room with your spouse (whether because of a restraining order or just because you can’t face dealing with your spouse), filing a separate bankruptcy may be the best option.

Bear in mind that even if you file individually before you file for divorce, you’ll need to include your spouse’s income on your bankruptcy petition.  So, it will likely require at least some cooperation from your spouse.  There’s an exception to this rule if you are already maintaining separate residences.

The next benefit of filing for bankruptcy before divorce is that your debts are dismissed before you try to reach a divorce settlement (or judgment).  That means you’re only dividing up the debts, if any, that you’ll actually still need to pay.

The downside to filing for bankruptcy before your divorce is final is that it might draw out your divorce proceedings.  Despite the fact that you can technically get divorced while a bankruptcy is pending, your property settlement can’t be completed until the bankruptcy proceeding is complete.  The usual chapter 7 bankruptcy takes about 120 days from the filing date to the discharge, and about 6 months before the case is finally closed.  So, the bankruptcy can potentially drag out the property issues for a couple months.  Conversely, if you have minor children, most states have a several-month waiting period before a divorce can be finished anyway.

Don’t trust your Bankruptcy in Bay City Michigan to your divorce attorney. While a brain surgeon and a proctologist are both doctors, only a politician could swap them without negative consequences.

Bankruptcy & Retirement Accounts

If you’re seriously contemplating filing for Personal Bankruptcy in Bay City Michigan, it is a very bad idea to empty out your retirement savings (401k, IRA, etc.).

While it is tempting to take that money to keep you going for awhile longer, there is a good chance that it will end up making your situation worse in the eyes of a Bankruptcy Trustee.

First, to file under chapter 7, you must meet the income requirements of the “means test,” which looks at your income over the prior half a year.  A withdrawal from your retirement account will artificially inflate your income.  Most bankruptcy districts will disregard the disbursement income, but some count it for means test purposes, even if they don’t count it as current income for repayment plans.   If they count it as income for the means test, it could push you into a chapter 13 or, at the very least, make it tougher to get a chapter 7 approved.

Second, if you have the money from those accounts placed in a regular bank account, you may not have enough exemptions available to protect all of it.  There is no specific bankruptcy exemption for cash, checking or savings accounts.  So, you must have enough of a general exemption (usually unused homestead exemption) to protect that money.  On the other hand, retirement accounts are normally exempt without limit.

Third, if you use the money to pay off some creditors (but not all) and then file for personal bankruptcy, the court may take exception to the special treatment given to some creditors.  This is especially true if  you use the money to pay off monies owed to family or friends.

Also, don’t forget that any cash withdrawal you take from a retirement account is taxed and penalized.  You will pay income tax on the entire amount, and additionally a 10% penalty for early withdrawal if you are under age fifty nine-and-a-half.

The bottom line is that many clients who have cashed out their retirements still end up having to file bankruptcy anyway.

But, they are now much worse off, having given up a relatively large asset that they could have retained.
If you are even remotely contemplating filing for bankruptcy, talk to a bankruptcy lawyer in Bay City Michigan before cashing out your retirement account.

Undischargeable Student Loans

Student loans are not usually dischargeable in personal bankruptcy.

The only way that student loans can be discharged is if it would result in an extreme hardship for the debtor.

What that has come to mean is that the debtor must be completely disabled with no ability to earn an income.

Obviously most people will not be able to meet that criteria. Most potential clients seem to grasp this, but what they do not know is that there are other options for dealing with student loans.
Their first option may be to choose a different repayment plan.

You may be able to repay the loan over a longer duration of time.

There are also income based repayment plans.  So, if your income has dropped, that may be a good option for you.

The amount that you repay in an income based repayment plan is decided based on your income and the number of people in your family, in spite of how large your loan is.  Such a plan can considerably reduce your payments, and sometimes get rid of them altogether.  If your payment isn’t large enough to pay all of the interest, the interest will continue to accrue and be added to your loan balance.

The “good” news, though, is that if you continue to make payments under an income based plan for 25 years, the remaining balance is forgiven.
If your situation is bad enough that you can’t afford to make any payments on your student loans, you may be able to quit making payments altogether for awhile. There are 3 ways to do this – forbearance, deferment, or cancellation.
A forbearance is the easiest to get of 3 options.  Essentially, a forbearance permits you to stop making payments for a certain amount of time.  You can be provided a forbearance for a number of reasons, including things such as poor health, unforeseen personal problems, or economic difficulties. In most cases, you can choose the period of time, up to one year. Once that time expires, you can also ordinarily re-apply for another forbearance.  The downside of a forbearance is that interest will continue to add up during the forbearance period, so your loan balance will increase.

If you can get one, a deferment is the most affordable option because, not only do you not have to make payments during the deferment period, but no interest compounds during that time.  A deferment is harder to qualify for than a forbearance, but there are several different types of deferments that may apply, including attending school at least 1/2 time, being unemployed (for up to 3 years), economic hardship, serving in the military, temporary total disability of you, your spouse, or dependent (for up to 3 years), and studying in an approved graduate fellowship or rehabilitation program for the disabled.
The most difficult option to qualify for, but also the most advantageous if you do meet the requirements is loan cancellation.  To cancel a student loan, you will have to meet very precise conditions. Some factors that may qualify you for a cancellation include permanent total disability, service in the US military, and providing services to needy populations (can cancel a portion of your loans).
Regardless of which option you use,it’s important to take some step if you are in danger of defaulting on your student loan. If you default, late fees, collection costs, and interest will quickly increase your amount owed. The lender may also garnish your wages or attach bank accounts or other property, just like any other creditor could do. And, student loan lenders have even more options available to them that are not available to other creditors.  Student loan lenders can do things like intercept your federal income tax return and even garnish your federal benefits, like Social Security retirement and disability benefits (but not Supplemental Security Income “SSI”).

For more information, contact a Bankruptcy Lawyer in Bay City Michigan from the list on our web site.

Combining Debts to Shrink your Payments

It could be possible for you to combine your debt into 1 loan with a smaller payment.

Sometimes, you can get a new credit card or personal loan that allows you to pay off a couple of existing credit cards and debts.

If you do this, make sure that the new loan actually leaves you better off.

If you get a low introductory rate that jumps after 6 months, it probably isn’t going to help that much.

In fact, if the rate jumps too much, you could wind up with larger payments than you had before the consolidation.
Quite a few people look at home equity loans as sources of debt consolidation.

If you are one of the lucky people that still have equity in your home right now, it may be a good option for you because home equity loans usually offer lower interest rates than unsecured loans and loans secured by personal property (automobiles, boats, and so forth). Again though, don’t just jump into a home equity loan without knowing the details of the loan.

If it is a variable rate loan, your taking a chance that the interest rate will go up and you won’t be able to afford the payments.
Another trick that creditors (both secured and unsecured) sometimes use is to offer a low initial monthly payment.

You might be paying interest only for awhile.

If your income doesn’t increase (and your other expenses do not decrease) you will not be paying down any principal.

At some point, the principal will become due and you won’t have a way of paying it.

Even worse, that small minimum payment may not even cover the interest. That means your balance is actually increasing and you are getting further and further into debt.

At least with an unsecured consolidation loan you’re not putting any of your other assets at risk.

Considering if you should File Personal Bankruptcy in Bay City Michigan? Contact a bankruptcy lawyer from the list on our web site.

Chapter 7 Bankruptcy in Bay City Michigan, It’s not for Everyone

Due to the downsides of filing bankruptcy, it’s best to consider it as a last resort.
Sadly, many people think of it as their only option because they just don’t have any idea what other options are available.
For many people, bankruptcy may, in fact, be the best and only option left. But, for some people, there may be other actions that have less severe and/or shorter-term consequences.
In reality, there are pluses and minuses to all of the possibilities. You just need to be aware of what those pluses and minuses are so that you can pick the correct solution for you.
Sometimes, there may really be no good solution and you need to look for the solution that is least bad and has the least affect on your long term ability to survive financially.
What follows is an explanation of several options that may fill that role for you.
Paying Down Debt
Most bankruptcy clients and potential clients that I’ve met with are well past the point where simple budgeting can help them. In fact, I think it would be insulting to many people to suggest that as their solution to their financial problems, especially if their problems are caused by job loss, medical debt, or other circumstances outside of their control.
However, I decided to include it because it is possible that, if your situation is not as calamitous, it could still be of some help.
Also, budgeting is the crux of all of the eliminate your debt fast with only the money you currently earn schemes (or at least all of the ones I’ve seen).
I have actually seen ads for products that suggest (notice that they never promise) that you can do things like eliminate $100,000 of debt in 4 months.  What you’ll find if you look at these products, is that there really is no such magic formula.
But, there is something to be said for taking an honest, thorough look at your income and expenses. Most people are surprised when they find out how much they are actually spending on unnecessary things.
How much money could you save if you brown-bagged instead of eating out?
How much money could you save if you got rid of cable/satellite TV (or at least cut out the premium channels)?
What if you got rid of your land line telephone and used only a wireless phone?
Or quit buying coffees?
Or bought generic items instead of brand name?
My point is, earnestly track what you are spending, and see where you can cut expenses.
Also give consideration to whether your financial difficulty is short term. That is, is it caused from some unusual expense such as medical bills, home repairs, etc. that aren’t in all probability to recur.  If so, think about taking on another job for awhile to increase your income.  Obviously, that’s not possible for everyone, but sometimes it’s adequate to get you through a tight spot.
After you get rid of the non-essential stuff from your spending, have you got any cash left over?  If you do, your first priority should be to pay off existing debts.
Some financial advisers will tell you to establish a savings before trying to pay off debts. That’s wrong for a very simple reason.
You will never earn enough income from savings to make up for the amount of interest you’re paying on your debt.
For example, you are lucky to get a savings account that pays 3% interest. But, your credit card might be charging you 29% interest.
So, if you put $1,000 in savings for a year, you will earn a grand total of $30 in interest.
As an alternative, if you use that same $1,000 to pay off a credit card, you’re going to save $290 in interest for that year.
That means that you are $260 better off paying off the charge card.

There is a listing of Bankruptcy Attorney in Bay City Michigan at this link.

Things Personal Bankruptcy in Bay City Michigan Won’t do for You Part Two

Today, we’ll continue our look into the kinds of things that you can’t accomplish through bankruptcy in Bay City Michigan.
1. It won’t get rid of tax liens. Bankruptcy will not eliminate tax liens that were recorded before your bankruptcy petition was filed.  Even if bankruptcy gets rid of your personal responsibility to pay the debt (see Part 1), the lien will remain on your property.  This basically means that you’ll have to pay off the tax debt in order to sell or refinance the property.  Bankruptcy can, however, prevent the IRS from filing new tax liens and from taking your property or income. It cannot stop tax proceedings. Bankruptcy won’t prevent the IRS from auditing you or from demanding tax returns to be filed.
2. It cannot eliminate other non-dischargeable debts. There are several kinds of debts that are not dischargeable in bankruptcy, including:
* Debts for personal injury or death caused by your drunk driving or by an intentional act;
* Fines and penalties imposed for breaking the law (for example, traffic tickets, criminal restitution, and other similar acts.)
* Debts obtained through fraud (ex:, falsifying a credit application, incurring debt with no intention to repay, etc.).
3. It won’t eliminate debts that are incurred after your bankruptcy petition has been filed. Also, certain debts that are incurred too close to the date of bankruptcy may not be discharged (e.g., purchases of luxury items valued at over $550 made within one hundred eighty of filing).
4. It can’t eliminate the obligation of a co-signer. When a debt is discharged in bankruptcy, it means that only you are no longer responsible for repayment.  But, if a parent, spouse, child, friend, or anyone else co-signed for the loan, they’ll still be on the hook for repayment.  The creditor could still take any collection action against the co-signer that they could’ve taken against you.
5. It will not stop criminal proceedings. Criminal trials and proceedings will continue regardless of bankruptcy.
6. It will not stop repayment of retirement loans. In spite of bankruptcy, money can still be withheld from your paycheck to repay loans from certain types of retirement accounts (pensions, 401(k), IRA, etc.).

File Personal Bankruptcy in Bay City Michigan with one of the Bankruptcy Attorneys listed on our web site.

What Chapter 7 Bankruptcy in Bay City Michigan Won’t do for You Part One

It’s true that filing chapter 7 bankruptcy in Bay City Michigan can get rid of most debt so that you are no longer legally responsible for paying those amounts.

However, bankruptcy (whether you’re looking at Chapter 7 or Chapter 13) can’t wipe out all kinds of debt.  Therefore, if you are considering filing for bankruptcy, it is important to understand what bankruptcy won’t do for you.
1. It cannot prevent a secured creditor from repossessing property.  A bankruptcy discharge gets rid of debts, but it will not get rid of liens.  So you should understand, if you have a secured debt (i.e., mortgage, car loan, etc.), the creditor can still foreclose on or repossess the property that secures the debt.  And if you file for bankruptcy, you will have to continue making payments on secured loans in order to keep the property.  Sometimes this is done through a “reaffirmation agreement”, which is filed with the bankruptcy court.  It is a good idea to talk to a bankruptcy lawyer to decide whether or not to sign a reaffirmation agreement.
2. It cannot stop child support or alimony payments.  Obligations to pay child support and alimony survive bankruptcy.  You will continue to owe these debts in full even if you file for bankruptcy.  Bankruptcy also cannot forestall new lawsuits seeking to establish paternity or to establish, change, or collect child support or alimony.
3. It won’t dispose of student loans (usually).  Student loans cannot usually be discharged in bankruptcy, meaning that you will have to pay the loans back in full.  The only time that student loans may be discharged is if you can establish an “undue hardship,” which is extremely hard to prove.  You have to demonstrate that, not only can you not make your loan payments now, but there is very little chance that you will be able to repay the loans at any time in the future.  Most times, this means that you must demonstrate some type of permanent disability or other reason why you will have no or a limited ability to work.
4.  It cannot remove most tax debts.  Taxes are tough to discharge in bankruptcy (regardless of what some commercials lead you to believe).  Taxes will only be discharged if all of the following are true: (a) the taxes are income taxes, (b) you did not commit fraud or willful evasion, (c) the debt is at least 3 years old, (d) you filed a tax return, and (e) you pass the “two-hundred-and-forty-day rule” (the IRS assessed the income tax debt at least two hundred forty days before you file your bankruptcy petition or has not yet assessed the debt).
Check back soon for part Two

Click on the link if you’re thinking about Chapter 7 Bankruptcy in Bay City Michigan

What Bankruptcy Can Do for You Part 2

A Few More Things  Personal Bankruptcy Could do for You

Filing Bankruptcy can also:

Stall eviction

If your being evicted from your property, the automatic stay may put off the eviction for a few weeks.  But, if the landlord already has a judgment of possession against you when you apply, the automatic stay will not delay it and the landlord can proceed just like you hadn’t filed for bankruptcy.

And, if the landlord argues that you’ve been endangering their property or using illegal drugs on the property, the automatic stay won’t protect you.

Stop collection of public benefit over-payments.

If you are receiving public benefits (unemployment, social security, etc.) and were overpaid, the agency is frequently qualified to collect the overpayment from your future checks.  The automatic stay in bankruptcy will halt this.

Get rid of certain types of liens.

A lien is a lender’s right to take some or all of your stuff.  e.g., the creditor who offers automobile lending will keep a lien on your vehicle until it is paid off.  If you don’t make your payments, the lien permits the lender to repossess your car.  Liens usually survive bankruptcy except when certain rights are invoked during the bankruptcy process.

Cram down secured debt

To “cram down” debt means to moderate the amount of the loan to the present value of the property.  e.g., if you have a auto loan with a balance of $8,000, but the vehicle is worth only $5,000, you can offer a plan to repay $5,000 to the creditor and have the outstanding $3,000 debt discharged in the bankruptcy.  Note, however, that you can not cram down a car debt if you bought the vehicle within 30 months prior to applying for bankruptcy.  You cannot cram down other types of secured debt if you purchased the property within 12 months of applying for bankruptcy.

Filing for bankruptcy can get your driver’s license back if it is suspended because you didn’t pay court-ordered damages for a driving accident except if you were driving under the influence of drugs or alcohol.

Click on the link if you have more questions or want to find a Bankruptcy Attorney in Bay City, Michigan who can help answer your questions about how to file Bankruptcy in Bay City Michigan.

What Bankruptcy Can do for You Part 1

Bankruptcy Can:

Wipe Out Unsecured Debts “unsecured debts” include things like credit cards, medical debt, personal loans, unpaid utilities, most lawsuit judgments, etc. They don’t include  mortgage loans or car loans.

Stop Collection calls and Collection Actions As soon as your bankruptcy petition is filed, an “automatic stay” goes into effect. That means creditors can’t take any further actions against you. They cannot call you, send you letters, file a lawsuit or anything else. If they do, it is a violation of the “Fair Debt Collections Practices Act” and they may liable for damages. Bankruptcy may also allow you to stop foreclosure on your house and/or reposession of your car.

If you use an attorney, they may let you refer creditors to their office before your bankruptcy petition is filed and maybe even before you pay the entire amount of your legal fees for the bankruptcy.

Stop Wage Garnishments If your wages are being garnished, or if a creditor is threatening to garnish wages to satisfy a court judgment, the automatic stay in bankruptcy will stop the garnishments immediately.

Delay or Stop Utility Disconnections If a utility company (water, electric, gas or telephone) is threatening to turn off your service because of missed payments, bankruptcy can prevent that for at least 120 days.

This is only a partial list of things that a bankruptcy can do for you.

Coming Posts will include more things that a Bankruptcy Can and Can Not do for you.

Everyone’s situation is unique though, so you should contact a Bankruptcy Lawyer in Bay City Michigan to get specific answers to your questions about filing Chapter 7 Bankruptcy in Bay City, Michigan.