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).

Pros and Cons to Chapter 13 Bankruptcy

For people who are ineligible for Chapter 7 bankruptcy, or wish to repay their debts using a repayment plan, filing for a Chapter 13 bankruptcy can be a great option. The following are some pros and cons to declaring a Chapter 13 bankruptcy.

Pros:

  • While under Chapter 13 the repayment of debts generally take place over a longer term, it’s often an advantage to have more time to budget and make disciplined payments; there can also be more flexibility on the payment terms in the context of Chapter 13. Furthermore, once you have successfully completed the Chapter 13 repayment plan, creditors cannot then obligate you to pay them in full.
  • While you can only file a Chapter 7 bankruptcy once every eight years, you can file for Chapter 13 repeatedly (every two years) if you need to (though each additional filing will show up on your credit report).
  • A Chapter 13 bankruptcy is noted on your credit score for up to seven years, while a Chapter 7 bankruptcy will remain for ten years.
  • If during a Chapter 13 repayment plan you experience a sudden and significant financial hardship like losing your job or accumulating medical bills, your bankruptcy trustee can modify the repayment plan. The court may even allow a debt discharge due to hardship.

Cons:

  • You limit your Chapter 7 options. You cannot file for a Chapter 7 if you previously filed under Chapter 13 within the last eight years.
  • A Chapter 13 repayment plan can take a long time (up to five years in some cases).
  • Since you will be repaying your debts out of your post-bankruptcy disposable income, you will have cash tied up throughout the duration of the repayment plan.

Your debts could be too high to qualify for Chapter 13. If your secured debts exceed $1,184,200, you will be ineligible for a Chapter 13 bankruptcy.

Chapter 7 Bankruptcy and the Means Test

The main hurdle you have to overcome when attempting to qualify for Chapter 7 bankruptcy is the means test. The Chapter 7 means test is designed to look at your income and expenses and disqualify you for Chapter 7 if they don’t fit within certain guidelines. The means test will compare your average monthly income for the six-month period preceding your bankruptcy filing against the median income of a comparable household in your state of residence.

The means test is intended to prevent people with higher than average incomes from filing for Chapter 7 bankruptcy. Often, the better bet for someone who cannot qualify under the mean test is to go the Chapter 13 route. The means test comes across as relatively straightforward, but it can be more complex than you think. A good bankruptcy attorney can be an invaluable resource in guiding you through this process. Here are three common mistakes people make when completing the means test form:

  • Listing the wrong household size. This can be more complicated than it would seem since courts don’t always agree on what constitutes household size. A minority of courts take the view that everyone living in the house should be counted. Other courts determine household size by including only those people who are financially dependent on the debtor. Household size is extremely important to the means test because it is used to calculate the median family income to balance against your income, and the standard deduction amounts for housing and certain other expenses.
  • Your income doesn’t match up to the documentation you provide. This is information you have to go over carefully. The number of weeks in a month, the issue date of paychecks, and the timing of the bankruptcy filing are all factors that can affect the average income figures.
  • Failing to take all allowable deductions. Don’t miss out on a deduction you are entitled to. Court ordered payments like those in a divorce or child custody case are allowable deductions, for example.

 

How Do I Get Credit After Filing for Bankruptcy?

One of the fears many people have over filing for bankruptcy is that they won’t be able to get credit afterwards. This is simply not the case. While declaring bankruptcy will hurt your credit score, there are strategies for rebuilding your credit immediately after filing.  Most chapter 7 clients begin receiving credit offers within 30 days of filing the case!

Right from the start you might be a more attractive prospect to a lender, since you have just dramatically reduced your debt-to-income ratio (at least in the case of Chapter 7; in a Chapter 13 this process will take longer, but it will happen). Those who have filed for a Chapter 13 bankruptcy will benefit from the discipline of being on a repayment plan. This will also help in the long-term process of rebuilding credit.

It is important after filing for bankruptcy that you closely monitor your credit reports and credit score. Make sure you get a copy of your credit report from the three main credit reporting agencies: Equifax, Experian, and TransUnion. Go over the reports and look for errors and omissions regarding your current residence, employment and contact information. Some experts recommending avoiding credit repair agencies. Not all of them are above board, and even the reputable ones may not be able to do much that you cannot do yourself.

Another way to immediately begin rebuilding your credit score following a bankruptcy is to open a secured credit card account. A secured card is a credit card that requires a cash collateral deposit which then becomes the credit line for that account. After a period of timely payments, the bank will sometimes reward you by increasing your credit line without you having to make an additional deposit. The best way to utilize a secured credit card is to make a few purchases every month and then pay them off in a timely manner. Don’t carry a balance around on the card. OlsenDaines provides all our clients with a free credit rebuilding program, an invaluable resource in helping you make a plan for rebuilding your credit.

 

 

What Debts Do You Still Owe After Bankruptcy?

Filing for Chapter 7 bankruptcy is a way for people overwhelmed with debt to get a fresh start on their finances. A debt discharge under Chapter 7 releases the debtor from personal liability for most debts. However, there are some debts that do not fall into this category. Depending on the circumstances, there are some bills that you must (or should) continue to pay.

The basic Chapter 7 timeline is as follows:

  • Mandatory credit counseling
  • Filing of papers to begin the bankruptcy process
  • Creditors’ meeting held about a month after the papers are filed
  • Mandatory budge counseling within 60 days of the creditors’ meeting
  • 60 days after the creditors’ meeting the court will send a written discharge of your debts

For most debtors the discharge order wiping out debts will be entered automatically. Once the discharge has occurred, creditors cannot initiate or continue any actions against the debtor to collect a discharged debt. This includes telephone calls, letters, and any other personal contact.

The following debts may not be discharged under Chapter 7:

  • Alimony and child support
  • Educational loans made or guaranteed by the government
  • Debts for willful or malicious injuries to another person or another person’s property
  • Debts involving death or personal injury resulting from the debtor’s operation of a motor vehicle while intoxicated
  • Debts for certain criminal restitution orders
  • Debts the debtor did not set forth in the bankruptcy filings to the court
  • Debts owed to certain tax-advantaged retirement plans
  • Debts for certain condominium or cooperative housing fees

It’s worth noting that the debt discharge under a Chapter 13 bankruptcy is slightly broader than Chapter 7. The following debts may be dischargeable under Chapter 13, but not Chapter 7:

  • Debts for willful or malicious injury to property
  • Debts involving property settlements in divorce or separation proceedings

If you would like to discuss your situation with one of our licensed bankruptcy attorneys, our doors are wide open. We offer free consultations to people throughout the state of Oregon, and we also have offices in Vancouver, and Tri-Cities in Washington. To schedule an appointment, send us a message through our contact page.

 

Consumer Bankruptcy: Are You Eligible?

Following the enactment of the Bankruptcy Abuse and Consumer Protection Act of 2005, debtors must pass a means test to qualify for a Chapter 7 bankruptcy. Basically, to qualify you must have little to no disposable income. The means test compares your average monthly income for the six-month period preceding your bankruptcy filing against the median income of a comparable household in your state of residence. Generally, this is not an issue since those filing for Chapter 7 likely have an income that’s significantly below the median.

Even if your income is above the median, there may still be some options. If, due to your income, you do not initially pass the means test, you then complete the means test form in its entirety. Rather than qualifying based on your income, this step entails a balancing process where your overall expenses are weighed against your income. Not all expenses are allowable under this test. But if after deducting the allowable expense from your income you are left with little to no income, you will probably be eligible to file for Chapter 7. This second step of balancing expenses against income is particularly complex, and it is strongly advised that it be conducted with the assistance of an experienced bankruptcy attorney.

Regarding Chapter 13 bankruptcy eligibility, it’s important to remember that you cannot file in the name of a business (not even for a sole proprietorship). For this reason, businesses are generally steered towards Chapter 11. However, even if you are a business owner you can still qualify for Chapter 13 as an individual and still run your business. Business-related debts can be included under Chapter 13 if they are debts for which you are personally liable.

To be eligible for Chapter 13, you must demonstrate to the bankruptcy court that you have enough income (after subtracting certain allowed expense and any required payments on secured debts like an auto loan or mortgage) to meet your repayment obligations. If your secured debts exceed $1,184,200, you are not eligible for Chapter 13.

Chapter 13 vs. Chapter 7: Which is Right for You?

When deciding whether to pursue a Chapter 7 or Chapter 13 bankruptcy, it is wise to sit down with a bankruptcy attorney and analyze your income, assets, debts, and your financial goals. For example, your situation might be such that you don’t qualify for Chapter 7, and would be better off repaying your debt over a period of time in a Chapter 13 repayment plan approved by a bankruptcy court.

A Chapter 7 is a liquidation bankruptcy designed to erase a person’s unsecured debts (e.g. credit card debt and medical bills). To qualify, you must have little to no disposable income. A Chapter 13 is a reorganization bankruptcy designed for debtors who still have a regular income and are capable of repaying at least some of their debt through a repayment plan. This is the option for those who cannot pass the Chapter 7 means test. Another reason to opt for a Chapter 13 is that it offers some benefits that a Chapter 7 does not (like the ability to catch up on mortgage payments you’ve fallen behind on). Below are some additional factors to consider.

Reasons why you might file for Chapter 7:

  • You do not have the ability to repay your debt in a repayment plan.
  • You urgently need relief from your creditors. After you file for Chapter 7, the bankruptcy court can issue a discharge order in as little as 3 months; following the discharge order, you will no longer be personally liable for any dischargeable debt.

Reasons why you might file for Chapter 13:

  • You are not eligible for Chapter 7 in the first place, or have significant debts that are not dischargeable under a Chapter 7 discharge.
  • You want to avoid home foreclosure, stop your car from being repossessed, or keep property that would be nonexempt under Chapter 7.
  • You want to repay your debt, rather than have it discharged.

Will Bankruptcy Impact My Retirement Funds?

Before we address the way that bankruptcy may or may not impact your retirement funds, we should explain the basic differences between a Chapter 7 and a Chapter 13. These are the two types of bankruptcies that are most commonly utilized by individuals. A Chapter 7 is a liquidation bankruptcy. Unsecured debts like credit card debts and medical bills are discharged under this form of bankruptcy. If you are current on your mortgage payments and your equity falls within a certain limit, you can retain ownership of your home if you were to file for a Chapter 7 bankruptcy.

 

You have to pass a means test to be able to qualify for a Chapter 7 filing. If your income is less than the median in the state of your residence, you would automatically pass this test. Getting back to the retirement question, if you are receiving Social Security benefits, they would not be counted when you are calculating your eligibility for Chapter 7 under the means test.

 

A Chapter 13 bankruptcy would be an option if you cannot pass this means test. It may also be a better choice for you even if you could qualify for Chapter 7, particularly if you are behind on your mortgage. This is a reorganization bankruptcy. Your disposable income is utilized to pay back some of your debts over a three-year or a five-year period. Mortgage arrearage could be corrected over the course of this repayment arrangement. When it comes to Social Security when you are in Chapter 13, the laws vary with regard to whether your benefits must be claimed as income, so your attorney will discuss this with you.

 

Under federal laws, virtually all retirement accounts are looked upon as exempt property when a bankruptcy is filed. The types of accounts that are exempt include 401(k)s, individual retirement accounts, 403(b)s, Keoughs, and profit-sharing plans. Most pension plans are also safe when you file for bankruptcy.

 

We Are Here to Help!

 

If you have questions about debt relief, our firm can provide you with answers. We have offices in Salem, Tigard, Albany, Portland, and other major metropolitan areas in Oregon, and we also serve clients in Tri-Cities and Vancouver in Washington. Our firm offers complimentary, no obligation initial consultations, and you can request an appointment if you send us a quick message through our contact page.

 

 

Chapter 13 Bankruptcy: Three Things You Need to Know

 

If you are in need of debt relief, you may be thinking about bankruptcy. It is important to understand the fact that there are multiple different types of bankruptcies. The ideal choice will depend upon your circumstances, so you should have some basic knowledge regarding your options. A Chapter 13 bankruptcy is one possibility, and when you absorb these three facts, you will come away with a rudimentary understanding.

 

1.) An automatic stay is granted.

 

Many people consider bankruptcy because they are being inundated with collection letters and threatening calls. When you file for a Chapter 13 bankruptcy, you get immediate relief, because an automatic stay will go into effect. This prohibits creditors from trying to collect on the unpaid debts, so you have some time to regroup as you prepare yourself for life after bankruptcy.

 

2.) You can keep your property.

 

You may assume that you have to surrender your property when you file for any type of bankruptcy. In fact, this is not the case with a Chapter 13. This is a reorganization bankruptcy rather than a liquidation. If the bankruptcy goes through successfully, you will be able to maintain ownership of your property.

 

3.) Your debts are paid back over time.

 

When you file for Chapter 13 bankruptcy, you submit a repayment plan to the court. After the basic necessities of life are met, the remaining disposable income must go toward paying back your debts. The repayment plan lasts for 3 to 5 years. Under bankruptcy laws, certain types of debts are priority debts, and they would be paid first. Nonpriority debts, like credit card bills, would be at the end of the list. Depending on the extent of your disposable income, some or all of this non-priority debt may be discharged.

 

Schedule a Free Case Evaluation

 

Now that you know a little about Chapter 13, you may want to sit down and discuss this option and other possible courses of action with a licensed bankruptcy attorney. If you live anywhere in the state of Oregon, we probably have an office near you, as we have locations in Eugene, Portland, Grants Pass, Medford, Coos Bay, and a handful of other cities. We also have an office in Vancouver, Washington. To schedule a free, no obligation case evaluation give us a call at 1-800-682-9568.

Is There a Chapter 13 Bankruptcy Debt Limit?

Chapter 13 is a reorganization bankruptcy. With this form of bankruptcy, you get an automatic stay as soon as you file. This shields you from most collection efforts while the bankruptcy is in progress, so you get some immediate relief. You create a repayment plan that will span for three years or five years when you are going through this type of bankruptcy.

The court allows you to maintain possession of enough resources to satisfy your basic necessities, and income that is looked upon as disposable income will be earmarked to pay your debts over the course of the repayment plan. Certain debts are considered to be priority debts, and they are placed ahead of non-priority debts like medical expenses and credit card debt. If there is not enough disposable income to pay these non-priority debts, they can be discharged in a Chapter 13 bankruptcy. This type of bankruptcy will stay on your credit report for seven years, but that does not mean that you cannot obtain new lines of credit sooner.

Most individuals will qualify for a Chapter 13 bankruptcy filing. However, if you have an extraordinarily high level of debt, you may not be eligible because there are debt limits. We use the word “limits” in the plural because there are different parameters for secured debt and unsecured debt. The limit for secured debt (like real estate and motor vehicles) is $1,184,200. For unsecured debt, the Chapter 13 debt limit is $394,725.  If your debt exceeds these limits, you still have recourse. You could choose to file for a Chapter 11 bankruptcy, which is another type of reorganization that is usually utilized by businesses.

Schedule a Free Consultation

We serve people in Vancouver and the Tri-Cities area in Washington, and we also have offices in Portland, Eugene, and many other cities in the state of Oregon. If you are interested in a bankruptcy filing, our doors are open, and we offer complementary, no obligation initial consultations. You can request an appointment right now through this website if you click this link and fill in the form that you see: free bankruptcy case evaluation.