When a divorce is entangled with your Chapter 7 or Chapter 13 personal bankruptcy filing, thorough planning and timing are an integral component to legally keeping your assets protected from the bankruptcy trustee and creditors.
Obtaining the best outcome for both spouse partners is of paramount importance throughout the entire process. Since every divorce case is unique, it is difficult to give generalized advice in any concrete manner regarding the best course of action without a detailed evaluation of the circumstances in your individual case. This is another reason why hiring an experienced bankruptcy attorney is a must first step in any case, particularly those involving a divorce petition.
As with most of the legal aspects regarding divorce and bankruptcy it becomes imperative that both parties make a concerted effort to avoid the emotional entanglements that can so easily accompany a divorce specifically, and focus on how best your bankruptcy can benefit both parties.
The following 7 principles are important to understand before entering into divorce or bankruptcy proceedings, and may affect your bankruptcy timing and planning decisions:
- Generally speaking, if you don’t have any assets to divide, or joint credit card debt to allocate, and there isn’t child support or alimony issues, you need to file bankruptcy before your divorce.
- Bankruptcy proceedings only deal with debts and assets on the date you file for bankruptcy. If financial obligations are created by a divorce decree after the petition date, they will not be included in the bankruptcy.
- If you receive property in the divorce within 180 days, (6 months) of the bankruptcy you might lose it to the trustee.
- If you are to receive support obligations, such as child support or alimony when you file bankruptcy, all that money will be off-limits to creditors. But property division will probably not be exempt and therefore be subject to creditors.
- A bankruptcy court can overrule a divorce court decision regarding what is property division and which are support obligations.
- There is an inherent process that can create future debt accrued to either spouse partner.
- Property divisions completed prior to bankruptcy are debts that you can avoid. For example, if a divorce court orders a transfer of assets to one of you, insurers when your ex files bankruptcy. However, if a divorce court orders your extra transfer, the property and he hasn’t done so prior to bankruptcy he may be up to escape this kind of debt through bankruptcy.
The 2 Categories of Future Debt Creation Resulting From Divorce
1. Future Support Obligations
A divorce may create support obligations, usually referring to a commitment to provide for the necessary care, support, and maintenance of a dependent child or another person as required by law. Support obligations usually cannot be discharged in Chapter 7 or 11. Even though your individual situation is unique, generally you should plan on being held responsible for the following:
- Child support
- Health and life insurance coverage, medical expenses, birth costs, and child care or special child-rearing expenses.
- Attorney’s fees for your ex-spouse
- Some of the debts that your ex doesn’t have to pay
One positive aspect pertaining to the above obligations is that you may be able to better afford them because other debt will probably be wiped out in your bankruptcy.
As a side note, when filing for Chapter 13 bankruptcy, you can make up any amount overdue or delinquent that you may have accumulated before bankruptcy pertaining to support debts. However, if you don’t fulfill your Chapter 13 repayment plan as agreed upon, the court may dismiss your bankruptcy in total. Then all of your past liabilities and debts will come due, none are wiped out and all your creditors and your ex-spouse can come after you with the full force of law.
2. Future Property-Division Obligations
This type of debt is usually created to pay for part of jointly-owned property that the court may award your ex-spouse. The property may be real estate or something like part of your retirement plan. In either case, these may become long term liabilities or require liquidation, the selling of the property, family residence, etc. to satisfy the court’s instructions. In addition, the court may place a lien on your property to secure the payment.
A property settlement obligation can be erased with a Chapter 13, but not a Chapter 7 bankruptcy. Also, with the Chapter 7 filing, your personal debts may be wiped out, but you will likely still have to deal with any liens that were put on your property by the divorce court. This kind of lien may be avoided to the extent it impairs your homestead exemption and should be discussed with your personal bankruptcy attorney.
Careful due diligence should be exercised when dividing up a property before filing for bankruptcy. The trustee will probably look at the property settlement to be sure it was fair and equitable. If a property was divided in a way as to be grossly disproportional and unfair to creditors, the lien-holder or mortgage lender for example will then have the power to recover the property from your ex-spouse to satisfy the debt.
In conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.
Almost everyone that declares bankruptcy has some credit card debt. Credit card debt may be your primary cause of bankruptcy or a side issue. Regardless, you will be able to discharge all or most of that debt. When you discharge credit card debt it will automatically give you more flexibility to deal with your other debts.
1. Don’t Pay Off Your Credit Card Debt With the Following:
- A home equity loan. Credit card lenders may pressure you into taking out a home equity loan, pointing out that the interest rates are much lower and may be tax-deductible. The credit card debt will probably be discharged and your homestead will probably be exempt. When you take out a home equity loan, you are putting your house on the line for credit card debt that will be eliminated in bankruptcy anyway.
- Part of your retirement IRAs or 401(k)s. In almost all cases your retirement plans are protected in bankruptcy. Also, you may be hit with heavy withdrawal tax penalties if you take out the money prematurely.
- Debt consolidation loans. In most cases, these types of loans only delay the inevitable. They lengthen the term of the loan to pay off the credit cards, usually with hefty interest rates.
2. Be Careful Not to Inadvertently Commit Fraud
Generally, credit cards are easy to discharge except when creditors allege fraud on your part. Fraud is when you knowingly or mistakenly make false representations. Do not give any reason for your creditors to believe that you intended to deceive them. The creditor relies on your honest representation, and if because of your actions the creditor suffers damages your case may be dismissed as invalid. There are several actions that may give creditors grounds to charge you with fraud that I will discuss next. Remember this fact, If fraud can be proven to the bankruptcy judge, he may not let you discharge that credit card debt, or your entire filing may be put into jeopardy.
Here is a list of 6 items that have the potential to give credit card companies grounds to challenge your credit card debt discharge:
- Be careful about making a lot of charges before declaring bankruptcy. It may appear you had no intent to pay those charges and were aiming to use the bankruptcy process to put one over on the credit card companies. The closer to bankruptcy the charges appear, the more it appears that you had an intent to defraud.
- If after talking to your bankruptcy attorney you then begin making unwarranted charges, it may appear that you already decided to initiate bankruptcy.
- If your financial condition is particularly poor when you start making credit card charges, it may appear you have no intent to repay them. If you can point out there was a significant reason to believe your financial condition would change, like getting a new higher-paying job, this may not be a concern.
- Be careful of charging luxury items and cash advances in close proximity to a bankruptcy filing. Purchases of more than $500 to a single creditor within 90 days of bankruptcy or cash advances of more than $750 within 70 days are automatically presumed fraudulent. So it may be necessary to wait at least 90 days before filing your bankruptcy to avoid this problem.
- Avoid creating new credit card balances or transferring old balances to new accounts within 90 days of filing bankruptcy for the same presumed fraud reason as above.
- Be careful of what you put on written financial statements. Creditors can use inaccurate information to claim they relied on your statements to lend you money. If they can prove your statements were purposefully incorrect, they may be able to keep you from discharging their obligation.
Writing knowingly insufficient funds checks are considered fraud. Postdated checks are similar in that the creditor can claim he knew the check would be no good and for that reason, it should not be discharged. Writing bad checks not only makes it difficult to open new bank accounts, but also can also earn you a trip to jail.
If you have been receiving government benefits fraudulently, bankruptcy will not discharge this obligation. If you’re still receiving those payments, the government agency may attempt to recoup the excess payments by reducing your benefits and future.
Any conduct that is considered willful and malicious will not be dischargeable in Chapter 7 but may be in Chapter 13. Defining what is “willful and/or malicious” is not easy to pin down, but if the creditor is claiming this conduct you can be headed for trouble. You need to see a lawyer immediately, because if you do not address these allegations the person or agency suing you will win automatically and you’re stuck with that decision. There are separate provisions of the bankruptcy law about debts arising from embezzlement and larceny. These debts are also not dischargeable in bankruptcy.
Criminals’ fines also cannot be wiped out in Chapters 7 or 13. Most courts will not allow you to pay these fines in Chapter 13 while other unsecured creditors are left unsatisfied. The problem arises in that if you don’t pay your fines you may be subject to arrest by the court that imposed them. If you can pay the fines before filing, considering doing so. Talk to your attorney about this sticky situation.
Noncriminal fines and penalties are usually dischargeable in Chapter 13, but not in Chapter 7.
Restitution is where you’re required by court to repay damages you have caused to another person. Restitution is not dischargeable in Chapter 7 or 13. If a victim sues you and obtains a judgment for restitution, you may be able to discharge it in chapter 13 if you did not cause any personal injuries.
Motor vehicle fines can fall into two categories, minor infractions or criminal violations. Minor infractions, such as parking tickets, are not dischargeable in Chapter 7 but are under chapter 13. Criminal violations are not dischargeable under either chapter. Drunk driving and driving under the influence are considered criminal offenses and therefore not dischargeable.
In Conclusion please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.
When considering debt-relief with a bankruptcy filing there are a number of obligations that cannot be wiped out. There are generally 5 categories that I will discuss in detail within this article. Some debts cannot be discharged because of specific statutes or prohibitions in the law, and will not be dis-chargeable just because of inexperience or plain sloppiness or timing of filing.
1. Debt-Relief Cannot Occur After Your Bankruptcy Filing
Debts are created by the event, not when you get the bill. If you buy a car with a loan, the debt is created at that moment, not when you get your first bill for payment. If you’re considering or must have substantial medical treatment that is uninsured, the resulting debt will not be covered by bankruptcy if you file before the treatment. If possible, delay the bankruptcy filing until after the medical treatment, and then include the debt in the bankruptcy filing.
2. Debts That Aren’t Listed in Your Bankruptcy Filing
Many times you may forget to list a creditor in your bankruptcy filing. Occasionally you might not even know you have a debt because the creditor stopped sending you a bill. Prior to filing bankruptcy be sure to go to all three credit unions to get a list of all the creditors you may own. Even if you are not sure of the amount you may owe list the debt and the creditors address. If this amount is wrong it puts the creditor in the position to have to file a proof of claim to establish the amount that actually owed. The point is you have listed the debt to discharge.
For example in Chapter 13 cases, debts are dischargeable unless you amend your filing to include those creditors who you may have forgotten on the original application. You have 90 days from the 341 meeting to make the amendment. Creditors then have 60 days to file a proof of claim.
In Chapter 7 cases, the unlisted debt is not technically discharged. In over 95% of non-asset Chapter 7 cases, the creditor would not have received any money even when the debt was listed. In this case, most courts, but not all, allow the debt to be discharged.
Comparison of Non-Dis-chargeable Debt: Chapter 7 Versus Chapter 13
- Marital and domestic support obligations are not dischargeable under Chapter 7 and dischargeable if paid under Chapter 13 plan.
- Marital property divisions are not dischargeable in Chapter 7 and are dischargeable under Chapter 13 plans.
- Student loans are not dischargeable under either Chapter 7 or 13 unless undue hardship can be proved.
- Claims made for investment or theft are not dischargeable in either Chapter 7 or 13.
- Criminal fines and restitution are not dischargeable under either chapter.
- Non-criminal restitution is dischargeable under Chapter 7 and Chapter 13 unless there was willful conduct causing personal injury, fraud, or embezzlement.
- Personal injury claims from drunk driving are not dischargeable in Chapter 7 nor dischargeable in Chapter 13 and must be fully paid in Chapter 13.
- Motor vehicle fines and tickets are not dischargeable under Chapter 7 but are dischargeable if a minor infraction. They are not dischargeable if the conduct was criminal.
- Claims for willful or malicious contacts are not dischargeable in Chapter 7 but may be under Chapter 13 unless assessed by the court.
- Pension loans are not dischargeable under Chapter 7 but are dischargeable in Chapter 13, but the debt amount can still be detected from the pension account.
- Welfare and unemployment benefits that were wrongly received are not dischargeable under Chapter 7 or 13.
- Debts resulting from fraud are not dischargeable in either Chapter 7 or 13. This would include debts created immediately before filing, like credit card charges and other debts where the debtor had no intension to pay.
- Real estate and personal property taxes that were incurred less than one year before bankruptcy are not dischargeable in Chapter 7, and in Chapter 13 plans, must be fully paid.
- Trust fund taxes are not dischargeable. Trust fund taxes are those taxes that were withheld from employee paychecks there were supposed to be paid. So if a business is shaky be sure to pay these employment taxes before anything else, because they will never go away.
- Loans that were made to pay non-dischargeable taxes are not dischargeable in Chapter 7. They are dischargeable in Chapter 13 unless borrowed fraudulently. For example, if you used a credit card to pay taxes while planning bankruptcy.
3. Reaffirmation of Debts in Your Bankruptcy
Other than taxes, which we will look at in a separate chapter, the only other debt that is not dischargeable are those that are reaffirmed. Reaffirmation is the process in which you agree to pay all or part of the debt. It gives all the rights back to the creditor. Why would one reaffirm?
The major reason is that a debtor wants to keep the debt is he want to keep the collateral that secures the debt.
4. Your Bankruptcy Petition Can be Thrown Out – Revoked
Speaking of discharges, your bankruptcy petition can be revoked altogether. If that happens your filing is thrown out and you will not receive any relief from your debts. There are several reasons a bankruptcy may be denied:
Grounds For Revocation of Your Chapter 7 Bankruptcy Filing
- Purposely fail to list an asset on your bankruptcy schedules.
- Intentionally give false information in your bankruptcy schedules.
- Lie or mislead trustee at the 341 meeting.
- Fraudulently transfer property within one year before bankruptcy.
- Fail to complete a financial management course after bankruptcy (required under BARF).
- Refuse to cooperate with the trustee.
- Disobey an order of the bankruptcy court.
- Fail to file all federal tax returns that should be filed with the court.
- Aggressively convert non-exempt assets into exempt assets.
- Previously received a Chapter 7 discharge in a case filed within eight years of the current filing, or within six years if a Chapter 13 case
- Failure to report or surrender property to the bankruptcy estate.
Grounds For Revocation of Your Chapter 13 Bankruptcy Filing
- Failure to complete a financial management course while your bankruptcy was pending.
- Failure to file all your federal tax returns that should be filed with the court.
- Have not kept current with your post-petition support payments.
- Received a discharge in a prior Chapter 7, 11, or 12 cases within four years of your present filing or in a previous chapter 13 case filed within two years.
- Failure to cooperate with an audit after the discharge or you don’t satisfactorily explain mistakes in your paperwork.
5. How Income Taxes Are Handled in Your Bankruptcy
Income taxes fall into a special category, so we need to look at them in detail. Taxes due within three years are also priority items, which means they get paid before other items. Income taxes can be wiped out in bankruptcy under certain specific circumstances. To file bankruptcy, you will need to prepare the last four years’ income tax returns and have them available for the bankruptcy trustee. As a general rule, taxes that are less than three years old, you’re going to have to pay through a Chapter 13 plan or make arrangements with the IRS for payment.
Taxes that have not been paid that are more than three years old and were assessed more than 240 days prior to the filing date are dischargeable. Simple right? As with all things IRS there are a number of possible caveats:
- First, the taxes must be true, and you can’t have engaged in tax evasion. Your only excepted failure is not paying in a timely manner.
- Be careful of timing. The start of the 3-year period normally is April 15 of the following year of the period, but if you file an extension, it starts after the extension expires.
There are three possible reasons that the 3-year period can be extended:
- If the IRS was prevented from collecting taxes because of a due process hearing, that time does not count, and an additional 90 days is added.
- Similar to the above any amount of time that a taxpayer assistance order was in effect, also does not count, and an additional 90 days is added.
- If you had a prior bankruptcy, the time the case is open does not count and 90 days are added to the three years.
If you never filed a tax return you will NOT be able to avoid paying them. There is no statute of limitations on non-filed returns.
How The Timing of Tax Payments Affects Your Bankruptcy
There are several timing decisions when dealing with tax payments that can affect the amount of taxes you may ultimately owe. When the IRS files a notice of tax lien with your county before you file bankruptcy it makes it even more difficult to discharge taxes. The lien gives the IRS a prior claim on all your assets, even retirement plans. So, they still encumber pre-petition assets.
When you file a Chapter 7, you may have the trustee use liquidate assets to pay your current taxes, but you must make an election to do so shortly after filing bankruptcy.
In Chapter 13, is critically important that you factor into your repayment plan the taxes the amount you do owe and that you expect to owe. If you don’t fulfill your plan agreement the entire bankruptcy can be revoked or denied.
Before filing bankruptcy, sometimes you want to consider paying non-dischargeable taxes by selling nonexempt property and paying off the tax debt. Always consult your bankruptcy attorney before taking this step.
State Income Taxes
Generally, the same rules apply to state income taxes that are covered by the IRS. If any of your federal tax liabilities change, be sure to file an amended state tax return also. You want to take advantage of any federal discharges that might apply to the state also. In Nevada, since there is no state income tax, this is one less thing to worry about.
Other Types of Taxes
Generally, non-income taxes are dis-chargeable in Chapter 7 or Chapter 13. The event that causes the tax liability must be more than three years before the filing date.
Property taxes are assessed against the property and land and only become an issue if you want to keep the real estate. You need to include provisions to pay these property taxes in any Chapter 13 plan.
Personal property taxes are not dis-chargeable if they are assessed against the owner and are less than one-year-old.
Please call our office at (775) 786-7600 or (775) 690-9120 and set up an appointment for a free and confidential consultation with me to discuss your financial situation. We will investigate all of your options and alternatives, even those that don’t require you to file bankruptcy at all. Feel free to visit our website at www.harrislawreno.com to learn more about our bankruptcy practice here in Reno.