Bankruptcy And The Family
Bankruptcy and Family Law Attorney in Coeur d’Alene
Serving Coeur d’Alene & Kootenai County
There are cases in which one or both spouses can benefit from filing bankruptcy. Non-secured debt is eliminated, and this can leave more money to cover other things, such as family or child support. Taxes can be paid interest-free, or eliminated entirely, if the taxes are old enough. Divorce proceedings can be simplified if debt problems are taken care of first.
If you’re married, you don’t have to file bankruptcy together; however, you need to be aware that there are significant ramifications to community property if you file without your spouse. If there are assets that are not exempt, a single spouse filing for bankruptcy will put all the non-exempt community property into the bankruptcy estate to ensure that those assets can be used to pay the debts owed. Many Chapter 7 cases, however, are “no asset” cases. This means that there is no liquidation of assets because all property is exempt. The automatic stay will not protect a non-filing spouse.
Bankruptcy and Divorce
For couples who are divorcing or have gotten a divorce, issues relating to bankruptcy are typically related to support issues, property divisions, and the extent to which each spouse is liable to the other. Amendments to the Bankruptcy Code in 2005 have made debts stemming from divorce non-dischargeable in a Chapter 7 bankruptcy protection filing. They are available for discharge in a Chapter 13 case. Even if you list debts stemming from divorce proceedings on your bankruptcy schedule documents, it doesn’t make the claim available for discharge. Bankruptcy filers, it should be noted, are required by law under penalty of perjury to disclose all debts – dischargeable and non-dischargeable – on the bankruptcy filing forms. Listing a debt to a former or current spouse does not convey the power or intent to discharge the debt. It is your responsibility to take action to protect your assets and interests if you hear about your spouse filing for bankruptcy.
Bankruptcy and Support Issues
If you are having trouble paying your court-ordered support, you should definitely look into getting the court to modify the support order to a level you can afford to pay. Alimony, child support, and family support cannot be eliminated in bankruptcy and garnishments toward support orders aren’t stayed in a bankruptcy filing; however, Chapter 13 bankruptcy protection provides you an avenue by which you may be able to catch up on support obligations. In Chapter 13, support owed is a bigger priority than any other debt you may have, including taxes. Support orders must be paid in full during the Chapter 13 plan. The plan enacted in a Chapter 13 filing is often an ideal resolution for both spouses in a support case as the paying spouse is insulated from collections from other creditors while paying on the plan, and the receiving spouse will receive consistent payments via the trustee in the case.
Bankruptcy and Property Division in a Divorce
Regardless of whether a couple is divorcing, a bankruptcy filing will put an end to all proceedings against the filer, whether that is the couple or just one of the spouses. All the property of the debtor will be brought into the bankruptcy estate as well as any community property. If there is a discharge of debts, the filer will be relieved of all personal liability regarding the dischargeable debts. Family courts cannot put debts stemming from a divorce onto a bankruptcy filer after a discharge has been obtained. Family courts cannot divide any property that is the property of the bankruptcy estate except in cases where the bankruptcy petitioner has made property exempt. If the exemption is allowed, then the exempt property is no longer property of the estate. While a bankruptcy is in process, however, a family court can decide on issues relating to support.
In a bankruptcy where both spouses have filed, the automatic stay protects both spouses, and both are released from personal liability for dischargeable debts. When only one spouse or a former spouse files for bankruptcy, things get a bit trickier. When you are personally liable for a debt, creditors can take your non-exempt assets and sell them to pay the debt. If you are married, the community property accumulated during the marriage is also liable for those debts acquired during marriage. Community property does not include gifts to either spouse during the marriage, inheritances during the marriage, or assets owned by one party prior to the marriage. Community property does include any real estate, earnings of both spouses, or any other property acquired while married. When a couple gets a divorce, the community property is divided between the spouses, and that property will become the personal property of each respective spouse and creditors can no longer look to community property to repay debts, because no community property exists. After divorce, a person is liable only for debts incurred while married. If, while married, you signed a loan, bought items on a credit card, caused an accident where someone was injured, acquired debt in relation to your business, or signed a tax return from which arises a tax liability, you are liable for those debts. You will not be held liable for your spouse’s credit card debt (unless your name is on the application and you signed it, as well), for non-joint tax debts, or for your spouse’s tort debts. You might be held liable if a division of debt in family court creates one.
A bankruptcy filing by one spouse does not remove the liability to pay from the other when it comes to joint debts, and, unless it is a Chapter 13 filing, creditors may turn to the non-filing spouse for payment. For most consumer debts, borrowers with a joint debt are protected under a Chapter 13 repayment plan. Typically, only those who actually signed the loan are liable for its repayment. Joint tax returns make both spouses liable for the entire tax debt.
Credit reports are not supposed to show debts belonging to your spouse if the debts belong solely to you. However, bankruptcy will probably be noted somewhere on the non-filing spouse’s credit report, as well, even if that person did not file for bankruptcy. The legal propriety of this is still in question.
One spouse’s bankruptcy filing may have an effect on the non-filing spouse in regards to future loan applications, as well. Creditors will consider the bankruptcy of one spouse if both apply for a loan in the future.
Contact us to schedule a free phone consultation with an experienced bankruptcy and family law attorney.