Posted by Kevin on November 25, 2013 under Bankruptcy Blog | 
Bankruptcy law allows married couples to file bankruptcy separately or together. That option comes with consequences, which can also affect whether you file under Chapter 7 or 13.
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If you’re considering filing bankruptcy with or without your spouse, consider the following:
- Each spouse has the legal right to join the other spouse’s bankruptcy or not.
- There are consequences to filing separately or together. Consequences affecting:
- the preservation of your assets;
- protection from creditors’ collection activity;
- the discharge of your debts; and
- dealing with the IRS and any other income tax authorities.
Today’s blog covers the first couple of these points, and the next ones cover the rest.
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1. Each spouse has the legal right to join the other spouse’s bankruptcy or not.
Married spouses often ask if they CAN file together, or if they MUST file together. By law, each person can file his or her own case alone, can file jointly with his or her spouse, or can decide not to file at all. But the fact that all the options are on the table doesn’t necessarily make the choice easier. In many situations it is in both spouses’ best interest to file either a Chapter 7 or 13 case together, but sometimes there are good reasons for one of them not to be part of that filing.
It can be a delicate choice, legally and personally. One spouse may owe most of the debt, because of a failed business or a prior divorce. One spouse may have run up some debt irresponsibly, perhaps without telling the other. The marriage itself may well be at risk because of financial stress. We’ve all heard that financial problems are one of the top reasons for divorce. The survival of the marriage may hinge on making wise choices about whether to file bankruptcy, who should file, and what kind of case to file.
Another delicate question is whether your marriage will outlast a 3-to-5-year Chapter 13 case. The realities are that:
1) many Chapter 13s do not get finished successfully;
2) when one isn’t finished, dealing with the fallout can be awkward;
3) as much as a Chapter 13 can help your finances, it is a long process requiring some stability and consistency;
4) Chapter 13s can handle changes in circumstances, sometimes even a divorce, but it’s generally not wise to file one if the odds are that the marriage isn’t going to outlast it.
So, if realistically the marriage is not stable enough to survive beyond the completion of a Chapter 13 case, then think about the Chapter 7 option instead.
2. There are consequences to filing separately or together. Consequences affecting—
a. the preservation of your assets:
One spouse filing alone versus both filing jointly can have an effect on how well your possessions are protected by your applicable property exemption scheme.
In some states you must use that state’s property exemptions, in others you have a choice of that state’s and a federal set of exemptions. NJ gives you the option. 99% opt for the federal exemptions because the NJ exemptions are so puny. Under the federal exemptions, if a husband and wife file jointly, the exemptions are doubled. Say, for example, you have $50,000 equity in your home. Using the federal exemptions, you can protect around $43-44,000 from creditors. That together with costs of sale may preclude any trustee action on your home.
Beyond this, sometimes one spouse—one who has much less debt, for example—owns an asset that the spouse who owes most of the debt has no legal right to. For example, consider a relatively new marriage in which the spouse without much debt inherited some property before the marriage. That spouse may understandably not want to risk having that inherited property go to a bankruptcy trustee to pay the other spouse’s debts. So that spouse would understandably not want to file bankruptcy with her spouse.
This kind of situation has to be analyzed very carefully. Both spouses need to understand how well the separate property of the non-filing spouse can be insulated from the other spouse’s bankruptcy case. In Chapter 13 it is harder to avoid having the non-filing spouse’s income and assets affect the other spouse’s case. The two spouses need to be very clear about all the consequences of only one person filing either a Chapter 7 or Chapter 13 case.
Please visit us for our next blog for part 2 of this topic.
Posted by Kevin on November 21, 2013 under Bankruptcy Blog |
Here are 5 questions to ask to find out which bankruptcy option is better for you and your vehicle.
1. Is your vehicle protected by the applicable exemption?
The first thing to find out if whether there is any risk that a bankruptcy trustee could take your car or truck from you if you filed a Chapter 7 case. In NJ, the exemption is only $3675 plus whatever you do not use on your homestead exemption. So, if your car is reasonably new (and not leased), chances are it is not completely protected by exemption. So, you have three possible options:
1) File a Chapter 13 case to protect the vehicle. This way you pay enough to your creditors through a court-approved plan so that your creditors receive over time what they would have received had a Chapter 7 trustee taken and sold your vehicle.
2) File a Chapter 7 case and pay the trustee—usually through a short series of monthly payments—for the right to keep the vehicle. This prevents the trustee from selling your vehicle by paying him or her about as much as would have gone to the creditors had the vehicle been sold.
3) Surrender the vehicle in a Chapter 7 case—assuming you don’t absolutely need it—and allow the proceeds to go to your creditors, an especially sensible option if the debt to be paid first is one you need to be paid anyway, such as income tax or back child support.
2. Are you current or almost current on your vehicle payments but really struggling to keep current?
Either Chapter 7 or 13 can enable you to keep up your vehicle payments by reducing or eliminating your other debts. Bankruptcy is a reprioritization. It empowers you to focus on what’s most important in your financial life. That often is your vehicle, which gets you to work and enables you to take care of your other personal and family responsibilities. Bankruptcy allows you to be wisely proactive, protecting your ability to pay your car payments—and for its necessary maintenance and repairs—before it’s too late.
3. Are you current on your vehicle payments, or if not would you be able to get current within a month or two after filing a Chapter 7 bankruptcy?
If you are not behind on your payments, you will likely be allowed to continue making those payments after filing bankruptcy, regardless whether your other circumstances point you towards Chapter 7 or Chapter 13.
And if you are not current but can catch up very quickly after filing bankruptcy, you can likely file a Chapter 7 case and keep your vehicle. However, if you can’t catch up that quickly, you will likely need the extra power of Chapter 13 to buy more time with your creditor.
4. Is your vehicle worth less than what you owe on it, AND did you buy your vehicle at least two and a half years ago?
If you say yes to both of these questions, you would likely be able to do a “cram down” on your vehicle loan in a Chapter 13 case. This means that through your court-approved plan you would in effect be able to reduce the balance of your vehicle loan down to the value of your vehicle, often also reducing the interest rate and extending the payments over a longer period, usually resulting in a greatly reduced monthly payment. So if you qualify for a vehicle cram down that may be a good reason to file under Chapter 13, because it is not available under Chapter 7.
5. Are your payments so high that surrendering the vehicle to your creditor—or maybe one of your vehicles if you have more than one—is your best choice?
Although bankruptcy can help you keep your vehicle in many ways, it also gives you the opportunity to get out of a bad deal, or one that no longer fits your present circumstances. Usually when you surrender your vehicle to the creditor you are left owing money—the “deficiency balance”—the difference between what you owe and what your creditor sells your vehicle at an auto auction. Bankruptcy gives you the opportunity to get rid of that deficiency balance. Chapter 7 would usually be the quickest way to do that specific task, unless your other financial circumstances pointed you towards filing Chapter 13.
Posted by Kevin on November 6, 2013 under Bankruptcy Blog |
The Cast of Characters
You—the Debtor
A Chapter 7 debtor is looked at quite differently from a Chapter 13 debtor. Focusing here on one main difference, Chapter 7 fixates on who you are financially at the moment your case is filed. Chapter 13 focuses not only on that moment, but also who you are financially for the next the three to five years (the length of your payment plan).
For example, if you started earning a higher income a year after your case is filed, that would have no effect if you had filed a Chapter 7 case. But in a Chapter 13 case, that income increase would likely increase what you’d have to pay your creditors. On the other hand, because Chapter 7 pretty much doesn’t get involved in your future, it also doesn’t protect your future income from certain potentially dangerous debts which are not written off, such as certain taxes and child and spousal support arrearage. Chapter 13 does protect such future income. It allows you to pay these kinds of special debts based on your budget instead of leaving you at the mercy of those creditors’ aggressive collection powers.
Your Primary Challenger—the Trustee
In both Chapters 7 and 13, most likely the person you would have the most contact with would be the trustee. They are carefully selected and supervised individuals who are assigned to your case to take care of certain tasks. I called them your “challengers” because that’s their primary job, but most of the time your attorney and you will work cooperatively with them.
The Chapter 7 trustee’s most important task is to determine whether or not he or she has the right to take anything from you—in other word whether everything that you own is “exempt,” meaning that you can keep it all, as is usually the case. The Chapter 13 trustee’s two primary tasks are to raise any appropriate challenges to your proposed payment plan, and then, once a plan is approved by the bankruptcy judge, to distribute to creditors payments that you make under that plan.
Your Adversaries—the Creditors
Under both Chapter 7 and 13, your creditors can play a major role but often don’t. They can challenge your ability to discharge (write-off) their debts, and can raise a variety of objections. Often, we don’t hear from them at all, but if we do it’s usually a secured creditor (one who has a right to collateral such as your home or vehicle) or a special “priority” creditor—a taxing authority or support enforcement agency. How the various kinds of creditors are handled in Chapter 7 vs. 13 will be discussed in future blogs.
The Enforcer—the U.S. Trustee
This is an office under the U.S. Department of Justice which administers and, to a large degree, oversees the whole system, including the Chapter 7 and Chapter 13 trustees. You will usually not hear directly from them, and if you do it’s usually not good news, indicating that you or your paperwork are not following the rules.
The Paper-Pusher—the Bankruptcy Clerk
This is the office where we file the bankruptcy documents (which is virtually all done electronically, not by paper being physically delivered anywhere). They send out the official bankruptcy court notices.
The Deciders—the Bankruptcy Judges
A bankruptcy judge is assigned to every Chapter 7 and Chapter 13 case, but mostly they work behind the scenes. You will almost never actually go to the judge’s courtroom in a Chapter 7 case, and seldom in a Chapter 13 case.
In most Chapter 7 cases, a judge is hardly involved, except in signing the discharge order releasing you from your debts at the completion of your case, assuming that it proceeded appropriately. In the relatively unusual situation of a creditor objecting to the discharge of its debt, the bankruptcy judge will decide whether the objection meets the relatively limited grounds for a debt not to be discharged.
In contrast, a judge is always involved in a Chapter 13 case, at the very least in the approval of your payment plan at what is called the confirmation hearing. But again, you almost never need to attend this hearing, which is taken care of by your attorney. Because of the length of a Chapter 13 case, it’s more likely than in a Chapter 7 case that issues will arise that need the judge’s attention—changes in your plan if your circumstances change, challenges by creditors or the trustee if you are not meeting the terms of your plan, and such. Chapter 13 is a 3-5 year journey that you take with the court, the trustee, your creditors and most importantly, your attorney. So a word to the wise, make your payments in a timely manner and stay in close communication with your attorney throughout your case so that you know whether issues are being put before your judge and how he or she is deciding them.
Posted by Kevin on November 3, 2013 under Bankruptcy Blog |
In deciding between Chapter 7 and 13, get this question out of the way right away: “Can I keep everything I own if I file a Chapter 7 case?”
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Most people do not lose anything that they own when they file bankruptcy. That’s because the law protects (“exempts”) certain kinds of your assets and usually a certain dollar value of them. If everything you own fits within those kinds and those amounts, then you can file a Chapter 7 “straight bankruptcy” and protect everything. Even if you DO own and want to keep things beyond those limits, filing a Chapter 13 case will likely protect those additional things. So, a way to put the question is whether 1) all your possessions are protected under Chapter 7 or instead 2) you need the extra protection provided by Chapter 13.
(This blog is about things you own free and clear. Those that are collateral on debts, such as your home with its mortgage, are a whole separate discussion for later.)
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This is a good first question once you start seriously considering bankruptcy because usually your attorney will be able to answer it quite quickly and assure your possessions are protected in a Chapter 7 case. And if some are not protected, that’s an issue that should be addressed by your attorney and you from the very beginning.
Just because your attorney can usually make this determination quite quickly does not mean that it is not an important question, or that it’s an easy one for someone who isn’t highly experienced in this area of law.
It’s an important question because:
1) If you’re filing bankruptcy you likely can’t spare to lose what you own, so you don’t want to put any of it at risk.
2) You especially don’t want to lose something unnecessarily, since there usually are ways to prevent that from happening.
It’s not an easy question for the inexperienced because:
1) In some states the state law determines what you can keep, while in some other states federal law does, and in others either state or federal law can apply.
2) After knowing which law applies, the asset categories are often not clearly stated in the statutes, and their meaning can turn on court interpretations or even on the informal practices of the local bankruptcy trustees or judges.
3) The laws change—the statutes, the formal court interpretations, and the informal practices, and it is very difficult to keep up with all this without working with it full time.
4) If you moved from another state, the statutes and court interpretations applicable to your former state may or may not apply.
And if everything you own is NOT protected, then Chapter 13 MAY be a great tool for keeping everything. But here are some good questions to ask your attorney in this situation:
1) Are the substantial extra time and cost of a Chapter 13 case worth this benefit?
2) Can those unprotected assets be more efficiently protected by some appropriate pre-bankruptcy planning?
3) Can those assets be protected in a Chapter 7 bankruptcy by paying a reasonable amount to the bankruptcy trustee—in reasonable monthly payments—while avoiding the extra hassles of a Chapter 13 payment plan?
4) If you would pay such money to the trustee, where would that money go, and might at least some of it go where it would benefit you—such as to pay taxes or some other debt that you would not be written off by the Chapter 7 case so you would have to pay anyway?
5) And lastly, would Chapter 13 help you in other ways beyond protecting your assets, so that overall it would be worthwhile?
