While most couples do file bankruptcy together, there are some circumstances in which married couples might decide to file bankruptcy separately. In rare cases, such as newlyweds, for example, one spouse might file bankruptcy alone, which helps to preserve the non-filing spouse’s credit standing. However, certain aspects of the marriage will still be examined, so you should consult with an experienced

The “Means Test”

Even if only one spouse is filing bankruptcy, the entire income of the household must be calculated for the “means test” that determines whether or not you are eligible for Chapter 13 or if you should file for Chapter 7. While bankruptcy laws require that the household’s total income be calculated, the codes also allow for household members who are not filing to include their expenses for deductions, as well. The means test for bankruptcy is quite complicated.

Do You Have to be Legally Married?

The short answer is, yes. You cannot be in a common law marriage, and even if you have been living together and referring to each other as wife and husband for 20 years, you can only file a joint bankruptcy if you are legally married. Common law marriages are not recognized in Michigan, but even if they were, federal bankruptcy codes require a legal marriage for joint bankruptcy petitions.

Will Filing an Individual Bankruptcy Affect Your Spouse?

There are times when only one of the spouses carries the load of debt. Married individuals have the choice of filing bankruptcy jointly or individually, so if only one spouse has the majority of debt, it would make sense for only that spouse to file bankruptcy. If only one spouse files bankruptcy, only his or her personal information, such as a name and social security number, will show up on the petition, so the credit report of the non-filing spouse will not contain any mention of the bankruptcy. This is typically rare, however, in married couples.

Are There Benefits for Married Couples Filing Bankruptcy?

It costs a little over $300 for an individual to file either Chapter 7 or Chapter 13 bankruptcy. Married couples only need to pay this filing fee once, which essentially means that both people get to file bankruptcy for all of their debts for one fee, rather than two. This is typically true for legal fees, as well – married couples’ debts are consolidated into one case.

Are You Considering Filing Bankruptcy?

If you live in Michigan, are married, and you are considering filing Chapter 13 or Chapter 7 bankruptcy, you should contact a Michigan bankruptcy attorney who focuses on helping married couples and individuals deal with their consumer debts. Contact an experienced attorney at Resnick Law P.C.for a free phone consultation at (248) 642-5400. If you are in the Detroit area, you can call (313) 423-8320, and if you are in the Bloomfield Hills, call (248) 642-5400. We will evaluate your specific case meticulously and help you make informed decisions based on your unique financial circumstances.    

(image courtesy of Ryan Holloway)

Chapter 13 bankruptcy allows a debtor to benefit from protection against aggressive forms of debt collection such as foreclosure, repossession, and wage garnishment, while requiring him or her to repay a portion of his or her debt. The repayment amount is based on the financial assets available to the debtor along with the amount of secured and unsecured debts owed. When filing for bankruptcy relief, a monthly repayment amount is proposed and the bankruptcy trustee will decide whether that amount is appropriate or not. However, it is possible that over the course of the three to five-year repayment period, the amount will change. Knowing why a

A Secured Debt is Paid Off

The chapter 13 repayment amount is largely influenced by the debts you have and the income you receive. Major changes to either factor could cause your payment to increase. If you own a home or a vehicle, paying it off means that you have more disposable income each month.  At that point, the bankruptcy court may decide to increase your monthly payment obligation to complete your plan faster or pay off other creditors in your plan.

Additional Income is Received

Changing jobs is one of the most common reasons for a bankruptcy plan payment increase.  Moving on to a higher-paying career or position usually means that the debtor’s income increases. Along with raises or promotions to higher paying jobs, the court may also view consistent overtime as a source of additional income. Any income increase that appears to be reccurring or consistent could lead to an increase in bankruptcy payments.

Support Payments End

Monthly support payments such as alimony and child support are taken into consideration when your debt-to-income ratio is determined. Depending on the age of your children or the time-frame outlined in your divorce decree, your period of making payments could end before your bankruptcy is discharged. When your monthly support obligations end, your trustee will determine a new repayment amount based on the increase of disposable income you now have.

Missed Payments

Falling behind on your monthly chapter 13 payment could extend the life of your repayment term. Usually when this occurs, your trustee will file a motion to dismiss your case or have it converted to chapter 7. Instead of losing your bankruptcy protection or being forced to convert to a chapter that does not allow you to retain certain property, your attorney may be able to have your case reinstated by bringing the plan current. Either a lump sum to catch up on past due payments is required or your monthly payment is recalculated to include the past due amount.

Contact a Bankruptcy Attorney

If you are considering filing chapter 13 bankruptcy or having issues with an existing case, do not hesitate to reach out to a qualified bankruptcy attorney. The legal team at Resnick Law is here to answer your questions and provide you with the help you deserve. The decision to file bankruptcy is not one to make lightly, and we are dedicated to providing you with the high quality legal representation you need. Contact either of our two conveniently located offices today to schedule an initial consultation.

(image courtesy of Oliwier Gesla)

When a person files for bankruptcy, “automatic stay” provisions come into play and most creditors must stop collection methods. Under a Chapter 7 bankruptcy, the debtor’s assets are collected by the trustee and sold to pay the creditors. Only “exempt” property is protected under a Chapter 7 bankruptcy.

Under a Chapter 13 bankruptcy, the filing party’s debts are reorganized and paid off in three-to-five years. The filing party keeps all property under a Chapter 13 bankruptcy; Chapter 11 bankruptcies are less common for individuals and are more complicated reorganization bankruptcy procedures for companies or extremely high net worth individuals.

To address some of the overlap between divorce and bankruptcy, the U.S. Congress passed revisions to the bankruptcy code, including The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which, as it relates to divorce, is that the automatic “stay” does not apply to spousal support or child support — so these will continue to be collected.

In addition, unsecured property settlement debts (debts owed to you by your spouse in your property settlement) are not subject to “discharge” in bankruptcy. When a debt is discharged, the creditor is legally forbidden to take any action “to collect, recover or offset any such debt.” (See Section 524 (a)(2) of the Bankruptcy Code.) The goal of most consumer bankruptcy cases is to discharge all debts, or as many debts as possible.

Financial support awarded in divorce decrees is a “first priority claim” that generally cannot be discharged. (Other examples of claims entitled to a priority are certain taxes, employee wage claims earned within 90 days before the bankruptcy filing, up to a certain dollar amount, alimony, etc.) Other debts that generally cannot be discharged include student loans.

Furthermore, your spouse’s filing for bankruptcy should not affect your right to receive wage garnishment for the support owed to you. Generally, your spouse’s filing of bankruptcy will not affect your collection of his or her past-due support, but under some bankruptcy plans the past-due payments may be discharged.

In some instances, your spouse’s filing of bankruptcy may be helpful as he or she will disclose income, real property and personal property when filing. You may be able to use property that was exempt from discharge to collect what support or property settlement obligations are owed to you.

A bankruptcy can, however, delay divorce proceedings. The State court handling the divorce will have no authority to make orders regarding marital property until either the bankruptcy is concluded or the automatic stay is lifted.

A money settlement is most likely to be property exempt from discharge in a bankruptcy if it appears to be a support arrangement, although with the passage of BAPCPA, it is generally no longer necessary to characterize money settlement as “support” in order to avoid discharge.

The court will look at the schedule of payments (one-time payment or installment payments), whether a major life event (like remarriage) affects the payment, whether there was a need for support, and other indicators that the payment was intended as support. Ultimately, the bankruptcy court is not bound by what you call the money settlement in your divorce.

A Difference of Note: Chapter 7 vs. Chapter 13 Discharge

Under Chapter 7 or “straight bankruptcy,” most debts are discharged, but there are exceptions: You may choose to continue making payments on your vehicle loan in order to keep that vehicle, so you might voluntarily choose not to discharge that loan. The kinds of debts that can’t be discharged in a Chapter 7 case are mostly the same kinds that can’t be discharged in a Chapter 13 “adjustment of debts” case, including child and spousal support, most student loans and recent income taxes.

However, there is one major kind of debt that can’t be discharged under Chapter 7 but can be discharged under Chapter 13: non-support divorce debts. So, if you owe a large amount of this kind of debt, you should seriously look into filing Chapter 13 bankruptcy instead of Chapter 7.

What are “Non-Support” Divorce Debts?

They are usually obligations in your divorce decree related to the division of property and the division of debts between you and your ex-spouse. As to the division of property, if in your divorce, your ex-spouse received fewer assets than you did, your divorce decree may have required you to pay your ex-spouse a specific amount of money to make up for the difference.

As to the division of debts, your divorce decree may have required you to pay certain debts so that your ex-spouse would not have to do so. This created a new and separate obligation by you to your ex-spouse to pay those debts, over and beyond your initial obligation to the creditor(s).

In a Chapter 7 case, your obligation to pay your ex-spouse the money to make-up for you getting more of the marital assets cannot be discharged — you would continue owing your ex-spouse that debt.

The divorce-created obligation to pay the designated debts would also not be discharged in a Chapter 7 case — you may be able to discharge your obligation to the initial creditor(s), but you would still be required to pay the debt(s) because of the requirement to do so in your divorce decree.

Discharged Only Under Chapter 13

However, both obligations to your ex-spouse, and all other non-support divorce debts, would be discharged in a Chapter 13 case. That’s part of the Chapter 13 “super discharge.”

That doesn’t mean that it could be discharged in a matter of months as in a Chapter 7 case. Rather, in a Chapter 13 case, it means non-support obligations would be treated like all other “general unsecured” debts. Outstanding non-support obligations would all be put into one pool of debt, and then to the extent you pay down that pool of debt is based on a number of factors, including:

• The amount of your other legally higher priority debts (such as back child or spousal support, recent income taxes and such), all of which must be paid in full before other debts are paid anything;
• The amount of the other “general unsecured” debts in that pool — the more other debts there are, the less your ex-spouse will receive;
• How much your plan must pay in administrative expenses: the Chapter 13 Trustee fees and whatever attorney fees you did not pay before your case was filed —which must be paid ahead of the general unsecured creditors;
• Whether your Chapter 13 plan lasts three years or five years — determined by your income when your case is filed, and;
• How much you can afford to pay all your creditors per month, now and throughout the length of the case.

As stated in the beginning, divorce and bankruptcy are complex and overlapping areas of the law. The best advice is to seek good counsel before undertaking either action.

For more information on bankruptcy and divorce overlap, contact Carina Kraatz at Resnick Law or call her at (248) 642-5400.