Bankruptcy in the Context of Divorce

 

Statistics show that 55% of all marriages end in divorce. And 39% of all divorced couples say that conflict over finances was the reason the marriage fell apart. Fights over money ruin relationships. That’s why we so often see divorce occurring when there is a bankruptcy. It’s because of this that it is critical to understand the intersection of the bankruptcy laws and divorce laws.

 What Comes First – Divorce or Bankruptcy? No Simple Answer.

If you are facing divorce and a bankruptcy, the first thing you need to consider is timing. You must decide whether to file for divorce first or for bankruptcy first. (Filing the two together causes significantly more problems.) How you answer that question depends on a number of things: your income, your spouse’s income, what type of bankruptcy you are filing for or qualify for (Chapter 7 or Chapter 13), what assets you have, the costs of divorce and bankruptcy, and more.

There is no easy answer to this question. You must take into account both the facts of your situation, the divorce laws, and the bankruptcy laws before you can come to a final decision. That’s why you should sit down with an experienced bankruptcy attorney to discuss your situation and what is best for you. We have offices throughout Oregon and in Washington, and we offer free consultations.

Here are just two things you need to think about when facing bankruptcy and divorce:

Divorce and the Automatic Stay
Once a bankruptcy is filed, whether it is a Chapter 7 or a Chapter 13, the “automatic stay” immediately goes into effect. The automatic stay stops all attempts to collect on your debts and it freezes your assets and your property. The purpose of the stay is to allow the bankruptcy court time to sort through what debts you owe and what assets you have (if any) to pay them with. The automatic stay remains in place until your bankruptcy case is fully resolved (by discharge, dismissal or the case is closed).

Since dividing up a couple’s assets and property (in addition to other things) is what the divorce is all about, bankruptcy’s automatic stay means that the family court will be prevented from making any decisions or dividing up the marital property until the bankruptcy is completed. And that means that the divorce will take longer.

 What Type of Bankruptcy?

Another factor to consider is the type of bankruptcy that you should file for. A Chapter 7 (“liquidation”) bankruptcy requires that you meet the income requirements of the “means test.” If your income compared to certain expenses is too high, you will be required to file for Chapter 13 (“reorganization”) bankruptcy instead.

If there is a big difference between what you earn and what your spouse earns, it might make more sense to file for divorce before you file for bankruptcy. On the other hand, if you earn significantly less than your spouse and you file for bankruptcy individually after the divorce is final, you may have a better chance of qualifying for Chapter 7 bankruptcy.

Then there is the fact that if you both agree to file for bankruptcy jointly, you may not qualify for Chapter 7 as a couple, because the income amounts are based on household size, and the income maximum for two people is not twice that of one person.

The intersection of bankruptcy and divorce may be a common occurrence, but it is not a simple one to navigate. But the good news is that you do not need to try to figure all this out on your own. We are here to help.

 Let Us Help You Decide.

If you are facing filing a bankruptcy and either your spouse has filed for divorce, or you have both agreed to divorce, let us help you think through your options. We are bankruptcy attorneys with offices in a number of cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. We offer free consultations and we can help you. To set up an appointment, call us toll free at: 1-800-682.9568 or contact us here.

Core Proceedings and the Bankruptcy Court

Let’s say you’re having a really, really, bad week. You were injured in a car accident, the extension the contractor put on your house fell apart and now you’re suing him for breach of contract, your wife just found out about your (latest) girlfriend and has filed for divorce, and you can’t pay your creditors, so you just filed a Chapter 7 or Chapter 13 bankruptcy. In the middle of reeling from all of this you think to yourself, when I get into bankruptcy court, is the judge going to decide the liability, breach of contract and divorce cases too?

Good question.

When you file for bankruptcy, it is important to understand what matters the court will decide and what matters it won’t decide. Knowing the extent of the court’s  jurisdictional authority is one reason why it is important that you hire competent bankruptcy counsel to represent you. We have offices throughout Oregon and in Washington State. Our attorneys are experienced bankruptcy attorneys and they know the law.

The Bankruptcy Court’s Jurisdiction. Core Proceedings.

Bankruptcy courts are courts of limited jurisdiction. That means that they do not hear and decide everything and anything. Congress granted bankruptcy judges jurisdiction over certain issues, which are called “core proceedings.” A bankruptcy judge’s decisional power is generally limited to bankruptcy matters.

Core proceedings are proceedings or issues that are entirely related to the bankruptcy case. The bankruptcy judge has the power to hear and decide these matters and enter judgment on them. Some examples of core proceedings are: the bankruptcy trustee’s duties, matters concerning debtor exemptions, or proceedings to determine, decide or recover fraudulent transfers. There are many more, but this should give you some idea of what the bankruptcy court will hear and decide.

Non-core Proceedings.

Non-core proceedings are issues that arise in a bankruptcy case that are not technically bankruptcy matters. These are called “non-core proceedings.” Examples of non-core proceedings in our fact pattern above would be your divorce, the car accident and the breach of contract action against your contractor. These matters are not governed by bankruptcy law but by other state laws and they are not directly related to your bankruptcy.

However, that does not mean that the bankruptcy court cannot hear and decide issues that may be non-core proceedings yet are matters directly related to your bankruptcy. For example, in our fact pattern above, while the bankruptcy court will not decide your divorce (in other words, it won’t enter a dissolution of marriage), it may decide issues in the divorce case that are related to your bankruptcy— like division of the marital property.

If the bankruptcy judge makes a decision in a non-core proceeding, that decision cannot become a final judgment unless all parties consent. If the parties don’t consent, then the bankruptcy judge must submit proposed findings of fact and conclusions of law to the Superior or Circuit court.

We Know the Law!

If you find any of this confusing, don’t worry. We are bankruptcy attorneys with offices in Tigard, Salem, Albany, Grants Pass, Klamath Falls, Bend, and several other cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. We offer free consultations and we can help you. To set up an appointment, call us toll free at: 1-800-682.9568.

What the Automatic Stay Can and Cannot Do

 

One of the immediate benefits of filing bankruptcy is the relief that the Bankruptcy Code’s “automatic stay” gives to a debtor. The automatic stay brings all collection efforts against the debtor to a screeching halt. It prevents creditors from collecting on their debts until discharge, the case is closed, or the stay is lifted. The automatic stay goes into effect immediately— without need for a court order —and it applies to all of the chapters of the Bankruptcy Code. It has a very broad reach. But it’s reach is not limitless.

As you might expect, there are many things the automatic stay can do, but there are also some things it cannot do.

Let’s take a closer look at the powers of the automatic stay.

What the Automatic Stay Can Do.

The automatic stay is found in Section 362 of the Bankruptcy Code. It prevents creditors from taking pretty much any action outside the supervision of the bankruptcy court that would give one creditor an unfair advantage over any other creditor.

Here are just two of the things the automatic stay prohibits:

  • Anyone from bringing or continuing any judicial, administrative, or other action or proceeding against the debtor that either was commenced before the bankruptcy was filed, or which could have been commenced before the bankruptcy was filed.
  • Enforcement of a pre-petition judgment against the estate (i.e., the bankruptcy estate), property of the estate, or the debtor. It prohibits all collection activity including: levies, garnishments, restraining notices and all post-judgment collection remedies.

What the Automatic Stay Cannot Do.

While the automatic stay applies to many actions against a debtor, as we said, it is not limitless. Here are just three things that the automatic stay cannot do:

  • Stop criminal proceedings. The automatic stay does not apply to criminal proceedings or criminal investigations against the debtor.  
  • Prevent tax audits or some actions to collect taxes. The automatic stay does not apply to prevent tax audits, notices or demands. It does not prevent all acts to collect any tax, or to enforce, create or perfect any tax lien. It doesn’t restrict the government from continuing with any tax audits. It won’t prevent the issuance of notices of tax deficiencies or a demand for tax returns or tax assessments.
  • Last forever. Generally, the automatic stay terminates on the happening of one of these events:

1. The case is dismissed;
2. The case is closed;
3. A discharge order is entered or denied by the court;
4. The property is no longer property of the bankruptcy estate; or
5. An order is entered that terminates, vacates or modifies the automatic stay.

Understanding the automatic stay— its reach and its limits —is very important. We have attorneys in Portland, Eugene, Coos Bay, Medford, and a number of other cities in Oregon and in Vancouver and the Tri-Cities in Washington, who can explain the reach of the automatic stay to you.

We Are Here To Help You.

If you are looking for relief from collections calls and creditors coming after you, the automatic stay may give you the break you need. We are experienced bankruptcy attorneys with offices in Washington and throughout Oregon. We offer free consultations, reasonable fees, and are committed to getting our clients the relief they need. To set up an appointment, call us toll free at: 1-800-682.9568 or contact us through our website.

What to Expect in Pre-Bankruptcy Credit Counseling

The decision to file bankruptcy is not an easy one to make. Many people experience enormous distress, shame and embarrassment over their financial difficulties. Without question, declaring Chapter 7 or Chapter 13 bankruptcy is no minor decision. But it just may be the right one for you. Especially if you cannot see any way of paying off your debt in the next 5 years.

Mandatory Pre-Bankruptcy Credit Counseling.

Before you can file for bankruptcy, however, you must complete mandatory credit counseling and receive a certificate. Once you have completed the counseling and have your certificate, you must file it with the court along with your other bankruptcy forms. Credit counseling is mandatory. If you do not file a certificate of credit counseling with the court, the bankruptcy court will dismiss your case.

But why do you have to do mandatory credit counseling?

Its purpose is to ensure that bankruptcy is your only best option. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in response to the fact that many people who were financially capable of repaying their debts were using bankruptcy to have those debts discharged. This new law completely overhauled the bankruptcy law and made a number of important changes to bankruptcy rules and procedures. One of these changes was the requirement that debtors complete credit counseling both before filing bankruptcy and prior to discharge.

The purpose of pre-bankruptcy credit counseling is to provide an impartial look at whether or not a debtor really needs to file for bankruptcy.

The Where, When, and What of Pre-Bankruptcy Credit Counseling.

Pre-bankruptcy credit counseling may be the most painless part of bankruptcy. It can be done in person, by phone, or online; and it usually doesn’t take more than a couple of hours.

The most important thing to remember is that you must complete the counseling before you file for bankruptcy. Upon completion, you will receive a certificate that is valid for 180 days. If you decide to file for bankruptcy, you will need to file that certificate with the court.

For your counseling session, you will want to bring with you (or have available) information about your debts and your income.

The counselor will discuss your financial situation with you and will talk to you about what non-bankruptcy options you may have. Counseling will most likely include:

  • A thorough review of your personal finances
  • A discussion of alternatives to bankruptcy
  • Personal budget plan.

The counseling will help you to understand how bankruptcy works and what you can do to avoid financial risk in the future.

We’ll Walk You Through it!

If you are concerned about whether or not you should file for bankruptcy, or have questions about what happens if you decide to file for bankruptcy, give us a call. We offer free consultations. We are experienced bankruptcy attorneys with offices in Tigard, Salem, Albany, Grants Pass, Klamath Falls, Bend, and several other cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. You can call us toll free at: 1-800-682.9568.

What is Bankruptcy Exemption Planning?

 

The main purposes of the bankruptcy laws are to:

  • Give an honest debtor a “fresh start” by relieving the debtor of most debts, and
  • Repay creditors in an orderly manner to the extent that the debtor has property available to do so.

One of the primary ways that the bankruptcy law attains its goal of providing debtors with a “fresh start,” is by providing debtors with certain “exemptions” that protect their property from creditors and put it beyond the reach of the bankruptcy trustee.

Bankruptcy exemption planning is the process of making deliberate choices concerning a debtor’s property before filing bankruptcy, to maximize the exemption protections provided by the bankruptcy law.

Warning: Bankruptcy Exemption Planning Can Be Dangerous.

Most people who file for bankruptcy do not lose anything they own because they often file a Chapter 7 bankruptcy and everything they own is “exempt.” Or, if they have non-exempt property, they file a Chapter 13 and are able to use its “adjustment of debts” option to protect their “non-exempt” assets. But bankruptcy is not a “one size fits all” proposition, so this isn’t always the case. Sometimes a debtor may have assets that are not exempt, but cannot be protected well through a Chapter 13. That’s when exemption planning can be very beneficial.

That is not to say that exemption planning is simple. It isn’t. It consists of developing strategies for managing and positioning your assets before you file for bankruptcy so those assets are protected once you do file. Those strategies may better enable you to pay certain creditors that you want to pay, or need to pay, over others that you don’t. But there are risks associated with exemption planning. Because of the dangers associated with exemption planning, especially over-aggressive planning, bankruptcy exemption planning should always be undertaken with the assistance of experienced and informed bankruptcy counsel.

As noted above, one of the main tenants of bankruptcy law is that honest debtors should be allowed to discharge their debts, and the law provides exemptions to allow them to do so. On the other hand, bankruptcy is not meant to benefit dishonest debtors. Section 727(a)(2) of the Bankruptcy Code prohibits any debtor who attempts to defraud creditors by transfers of property, from being discharged. Clearly, then, there is a tension in the law with regard to how much you are allowed to sell or transfer before filing for bankruptcy. To properly engage in exemption planning, you will need the advice of an experienced and highly competent bankruptcy attorney to guide you as to the safest way to engage in asset protection and other strategies, and to inform you on which strategies are likely to be safe, and which are risky.

Don’t Go it Alone!

If you have assets that are not exempt but can’t be protected well through Chapter 13, or are simply considering filing bankruptcy, you may well benefit from pre-bankruptcy planning. If you are in Portland, Eugene, Coos Bay, Medford, or any other city in Oregon, we have an office near you, and we provide free initial case consultations. To schedule an appointment, give us a call or send us an email.

Can Filing a Chapter 7 Bankruptcy Stop Foreclosure?

The worst has happened. You’ve fallen behind on your house payments, and the bank has started foreclosure proceedings. First you got the Notice of Default. Now you’ve been served with the Notice of Sale, telling you that the bank has set a date for the sale of your home. What can you do? Should you file a Chapter 7 bankruptcy to stop the foreclosure?

Maybe, but then again, maybe not. Foreclosure laws differ from state to state and they are very complicated. Whether a Chapter 7 filing is right for you depends on your particular circumstances. However, if you are facing foreclosure, it’s important that you understand at least some of the basics, including the difference between a judicial foreclosure and a nonjudicial foreclosure, and:

  • how much time you have to respond to the notices,
  • what your rights are and what laws protect you in foreclosure, and
  • what happens afterwards (for example, whether you’ll be liable for a deficiency judgment).

Filing a Chapter 7 bankruptcy can temporarily stop the sale of your home (because of the “automatic stay”) but that does not mean it will ultimately save your home from foreclosure. Whether a Chapter 7 is the right option for you is something that you should discuss with a bankruptcy attorney. Here at OlsenDaines, our bankruptcy attorneys know the options and care about the outcome. That’s why we offer free consultations, so we can sit down with you and help you decide what is the best approach for you and your family.

While a Chapter 7 will give you the benefit of the automatic stay, bringing the foreclosure to a halt until discharge or the stay is lifted, unlike a Chapter 13 bankruptcy, it will not allow you to catch up on missed mortgage payments. That’s because a Chapter 7 is a liquidation bankruptcy designed to discharge (wipe out) unsecured personal debts (e.g., credit card debt and medical bills).

Chapter 7 Will Erase Personal Liability on the Note, But it Won’t Eliminate the Lien.

When you took your loan from the bank, you signed a Promissory Note (“Note”) agreeing to repay the money. And you secured that promise with a Deed Of Trust (“Deed”), creating a lien on your property. Chapter 7 will wipe out the amount you still owe on the Note, but it won’t wipe out the mortgage lien. That means that if you are behind in your payments on your mortgage, your lender can foreclose on your property. It also means that the lender can continue a foreclosure that was delayed by your bankruptcy once you are discharged or a relief from the automatic stay (“relief from stay”) is granted. The same thing applies to other liens on the property; like homeowner association liens, or condominium liens.

No Deficiency.

On the other hand, the lender cannot get a deficiency judgment against you after a nonjudicial foreclosure. (A deficiency is the difference between the amount you owe on the loan and what the house sells for at the nonjudicial foreclosure sale.) In many states, absent a bankruptcy, the lender can come after the homeowner for this amount. Oregon laws prevent a lender from getting a deficiency judgment after a nonjudicial foreclosure, a judicial foreclosure of a residential trust deed, or a short sale (if certain conditions are met). But Oregon does not have laws about deficiency judgments where a deed is given in lieu of foreclosure (“deed in lieu”). That means you need to be careful if you accept a deed in lieu of foreclosure, because the specific language of the deed in lieu negotiated between the borrower and the bank will govern whether or not the lender can seek a deficiency.

Talk to a Lawyer!

Losing your home to foreclosure is stressful and can be devastating. The foreclosure laws are complex and confusing. If you are facing foreclosure or struggling with debt, take advantage of our free consultation and talk to one of our experienced Oregon or Washington bankruptcy attorneys. We can help you decide what course is best for you and your family. Call us at 1-800-682-9568 today!

What Role Does Your Attorney Play in Filing for Bankruptcy

Bankruptcy is a complex process that begins before the time you file and goes straight through to the debt discharge and the period when you will begin the process of rebuilding your credit. An experienced bankruptcy attorney can help you navigate the maze of decisions, paperwork, procedure, and compliance that goes along with a bankruptcy filing.

From the beginning, your bankruptcy attorney is there to determine the right course for you and your specific circumstances. We assess your financial situation, help you to determine your financial goals, and discuss the options that are available and most appropriate for you. We can also begin taking collection calls and other creditor communications on your behalf.

One of the main tasks your bankruptcy attorney will undertake for you is the preparation and filing of your bankruptcy petition. These forms are exhaustive, and often run to 30-60 pages or more. The attorney will ensure that the forms are filled out completely and accurately in compliance with the applicable state law. Once you have reviewed the information, your bankruptcy attorney will file the finalized, signed version with the bankruptcy court.

A bankruptcy attorney will also help you determine whether a Chapter 7 or a Chapter 13 bankruptcy filing is right for you. This involves you and your attorney assessing the size and makeup of your debt, what assets you are willing to risk in a bankruptcy, and your ability (if any) to repay your debts. When you have an initial consultation with a bankruptcy attorney, here are some of the key points to go over:

  • How you can leverage bankruptcy to achieve your financial goals
  • What you can expect during the bankruptcy process
  • Any difficulties or issues specific to your case
  • Whether you should file for Chapter 7 or Chapter 13
  • What can be done to make the bankruptcy process easier for you

 

 

What You Should Not Do Before Bankruptcy

Before filing for bankruptcy, there is a significant amount of preparation that you should take to ensure that nothing adversely affects the bankruptcy process. An experienced bankruptcy attorney is an invaluable resource when determining what steps you should take to prepare. Some actions can have a negative, or even irreversible, effect on your bankruptcy. Here are some common mistakes to avoid.

When you’re filling out the bankruptcy paperwork, and at the creditors meeting, it’s essential that you provide complete and accurate information about all assets, debts, income, expenses, and anything else pertaining to your financial history. You are doing so under the penalty of perjury. To knowingly misrepresent any of this information is to risk criminal prosecution. Fill out the paperwork carefully. Make sure you answer all the questions and include all the information requested; only leave something blank if you’re sure it doesn’t apply to you. If you leave something out that should have been included, it can cause problems later on in the bankruptcy process.

It’s also crucial to have filed your income tax returns. If you have not filed your returns for a minimum of two years prior to filing for bankruptcy, it makes completing your petition, schedules, and statement of financial affairs extremely difficult. Furthermore, it can effectively bring the bankruptcy process to a halt. Your tax returns are necessary to determine your past and current earnings and asset holdings, and to satisfy potential priority tax claims.  Under chapter 13 the court and trustee will require all returns that you were required to file within the previous four years be filed within the first couple of months of the case.  If you fail to do so the court can dismiss the case.

Do not run up any additional debt within the 70 to 90 days prior to filing for bankruptcy. If you do, the creditor(s) can object to your discharge on the grounds that you ran up the debt fraudulently (that is, without any intention of paying it back). A possible exception is if you took out a payday loan as part of a cycle of cash advances and repayment. An experienced bankruptcy attorney can help guide you through the process of preparing for bankruptcy to ensure that your filing goes smoothly.

 

 

Can Bankruptcy Keep You From Getting a Personal Loan?

After filing for bankruptcy, many people despair that they’ll never be able to get a personal loan. The good news is that this is by no means the case. In fact, while the bankruptcy can stay on your credit report for up to ten years, you can still begin the process of rebuilding your credit immediately after you file. There’s no reason why you can’t get back into a position to qualify for a personal loan after your bankruptcy. Here are some important steps you can take to make this process as fast and efficient as possible.

  1. Keep track of your credit reports

There is no question that a bankruptcy will hurt your credit. However, your credit can begin to rebound right after you file. In fact, the debt discharge might make you more credit worthy from the get-go by improving your credit-to-debt ratio. To ensure that this process is underway, check that the three major credit reporting agencies are correctly showing your bankruptcy. Make sure that all accounts involved in the bankruptcy process show a zero balance and are labeled as “discharged.”

  1. Rebuild a positive payment history

It’s crucial that, following the bankruptcy, you pay all your bills on time every time a payment is due. A good strategy is to keep one account open, but maintain it with a zero balance. Once a month, make a few purchases; then promptly pay off the balance.

  1. Try a secured credit card

If you’re having trouble opening a credit account following your bankruptcy, you might consider a secured credit card. These are cards designed for people with poor credit to begin the credit rebuilding process. They require you to deposit cash as collateral which then becomes the credit line. When applying for any new credit post-bankruptcy, be careful that you don’t overdo it. It’s crucial to avoid the past behaviors or patterns that may have contributed to the bankruptcy.

 

 

Bankruptcy and Divorce

Divorce is one of the big three reasons people file for bankruptcy (medical and job loss are the other two).  The interplay between these two areas of law can be complicated.  To make the right decision in terms of if and when to file for bankruptcy in the context of divorce, you need to know how bankruptcy can affect divorce and vice versa.

Generally, it makes the most sense to file for bankruptcy before getting a divorce. Since bankruptcy fees are the same for both joint and individual filings, you and your spouse can save money on fees by declaring bankruptcy while still married. Furthermore, attorney fees will likely be lower if you file jointly (make sure your bankruptcy attorney is aware of the upcoming divorce to avoid any conflict of interest).

Regarding Chapter 7 vs. Chapter 13, it is usually a better idea to file for a Chapter 7 bankruptcy before a divorce. A Chapter 7 bankruptcy filing will usually take only a few months to receive the debt discharge. A Chapter 13, however, will run for three to five years. Since this process drags on, if you want to file for Chapter 13 it is usually better to do so after the divorce.

Filing for bankruptcy before also simplifies the property division process that will take place during the divorce. However, this is only the case if you live in a state that allows for enough exemptions to protect all of your joint property. Some states allow you to double the exemptions if you file for bankruptcy jointly. If you can’t double the exemptions, it might be a better idea to file individually after the divorce. Check with your bankruptcy attorney to clarify what your state will allow.

Also, when deciding when and if to file for bankruptcy before/after a divorce, keep in mind that certain debts are not dischargeable. Non-dischargeable debts include: alimony, child support, student loans, and attorney fees related to child custody or support cases.  If possible, consult with a bankruptcy attorney before starting the divorce proceedings to get the best course of action (if the petition for divorce has already been filed then each party will need to consult with their own bankruptcy attorney).