The question often comes up as to whether it is more beneficial to file for bankruptcy before or after a divorce. It really depends on your situation and what assets are being divided up in the divorce. You can file for bankruptcy if you are separated from your spouse. That can really simplify the divorce process and eliminate all the debt instead of litigating on who is going to pay for what debts. The divorce process can also be very costly relative to filing for bankruptcy.
There are situations where one spouse earns significantly more income than the other. This can make the difference between qualifying for a Chapter 7 or having to file a Chapter 13. If you are married, your spouse’s income is required to be included, whether or not they are filing for bankruptcy with you. If you are separated and residing in different households, you still have the option to file for bankruptcy together or file alone without your spouse and not include their income. There is a way to include both people’s incomes and both people’s expenses on separate budgets in the bankruptcy petition if both spouses want to file for bankruptcy. Many times, this enables both people to file for a Chapter 7 because you are evaluating the income as if they are each individual households rather than counting all the income towards one household.
There are people who “separate” and are in the process of divorce even though they are residing in the same house. There are factors to look at in terms of whether you are still splitting expenses? Are you still on joint accounts paying bills together? Is one person paying the bills? Are you still living in the marital home? Generally is better to be living separately or you would have to show that economically you are not still operating fiscally as one household. If you do have any questions about timing of the filing and how to proceed with it, it is best to consult with an attorney.
There are certain income requirements to file a Chapter 7. That amount typically adjusts for inflation twice per year. That amount varies based on your household size and by state.
In the State of Florida the amounts are as follows:
One person household: $60,429
Two-person household: $74,131
Three-person household: $83,396
Four-person household: $100,476
Five-person household: $110,376
Six-person household: $120,276
Dependents in your household include children under the age of 18. If custody is split, we usually factor in how much time the child spends at your residence and how many children there are. If custody is split 50/50 and there are two children, we would list a two-person household. Children under the age of 24 that are in school full-time can also be considered dependents or any disabled children. If there are elderly parents living in the household, they can be considered in the household size or any other relatives. However, if any person is included in the household size, we need to include their income and expenses as well. Social security does not count towards the income amount.
If you are still over that amount, there is still a potential you could qualify for a chapter 7 if you “pass” the long form of the means test. The means test is required for all those debtors who are over the “median”. The test determines your eligibility for a Chapter 7 or the amount of your plan payment in a Chapter 13. It uses some of your actual expenses and some expenses are determined by the IRS guidelines based on your household size and county where you reside. It can get a bit complicated, so it is good to consult with a bankruptcy attorney to guide you through the process.
There are situations that arise where a potential debtor inherits property. Let’s say for example, a house is inherited that is worth 200,000 and its devised in the will to all four surviving children so each child has a 25% interest/$50,000 interest in the property.
The first issue to determine is who resides on the property. If the debtor is living in the property than it can be exempted as homestead. If another relative is living in the property and the debtor has another residence, then the trustee does have an interest in the debtor’s proportionate share.
Typically, the trustee will try to have the other owners buy out the debtor’s portion. In this case, the trustee would likely try to see if the other three siblings could put in 50K to buy out the debtor. They would have to figure out how to finance or fund that $50,000 on their own to pay the trustee.
If those three siblings did not have the financial ability to provide those funds to the trustee, the trustee would have the option to sell the property and distribute the proceeds. It is usually best to resolve these issues prior to filing your bankruptcy.
If you do receive an inheritance six months after filing your bankruptcy case then you are obligated to notify the trustee. Anything that is inherited (personal property, jewelry, real estate, liquid cash and/or stocks) would have to be turned over to the trustee.
If the inheritance is more than the amount of your unsecured debt, then you would receive the balance of proceeds. The trustee cannot take more than you owe your creditors (less a small trustee fee to administer the case).
There are certain income qualifications for a Chapter 7 bankruptcy. Social security income, including social security disability does not count as income on the means test (the test on the bankruptcy petition that determines which chapter of bankruptcy you qualify for). Similarly, veteran disability benefits do not count as income. For example, if you are receiving social security or veteran disability benefits you could make an unlimited amount per month and still qualify for a Chapter 7 bankruptcy.
Some people are surprised that pensions for government work such as teachers, police officers, military, or firemen still count as income. Workers’ compensation benefits also count as income. Short-term or long-term disability from a private company that is not social security are considered income. Regular wages or income from self-employment are considered income. Child support and alimony are considered income on the means test. Even if the income is not taxable, it could still qualify as income on the means test.
The issue of whether money in your account at the time of filing is exempt is a totally different issue than whether it counts as income on the means test. For example, workers compensation, child support and alimony are generally exempt even though they are considered as income on the means test Any money you have in your bank account from one of these sources in addition to social security or veteran disability benefits would be protected from the trustee.
We can exempt up to 75% of wages in your bank account. However, self-employment income is not exempt. It is important to have an attorney help you evaluate your candidacy for a Chapter 7 bankruptcy and to ensure you maximize your property exemptions.
In today’s current market business owners are faced with numerous challenges from finding employees to drastically increased costs. They are faced with the question of whether they will be able to continue their business or whether it’s better to close it.
That is a very personal decision since so much goes into starting and sustaining a business. There are several factors we look at in making that determination.
Are there any business assets such a commercial building, inventory, or equipment that should be liquidated to pay your creditors? Your assets cannot be sold or transferred for your benefit at the expense of paying your creditors. Even transferring assets to a new business venture can disqualify you from filing bankruptcy so its very important to consult with an attorney before making any decisions on the proper steps to close your business. Another issue is whether the debt is exclusively in the business name, did you personally guarantee the business debt, or did you use your personal credit lines to fund your business?
In most cases, there is a personal guarantee on business debt and personal credit cards are used to keep the business afloat. If the majority of your debt, is non-consumer or business-related then you would qualify for a Chapter 7. Again, it is important to seek the advice of an attorney to determine which Chapter type you would qualify for under the bankruptcy code.
Many times, if the business has no assets and will be closed then it can just be administratively dissolved without the need to file for bankruptcy. Another issue also is whether there are any outstanding account receivables, do you reasonably expect payments in the future, or expect any reoccurring income? There is also a potential that that could be collectable by the trustee if you are filing a business bankruptcy.
All of these factors need to be considered whether determining whether to file a business bankruptcy or a personal Chapter 7 or 13 bankruptcy.
It is quite common for bankruptcy clients to have friends, family members, or significant others as co-signers due to their inability to obtain credit without co-signer.
Our clients are oftentimes concerned about how their decision to file for bankruptcy might affect their co-signer’s credit. If you have a credit card with a co-signer, you can still get that debt discharged by filing for bankruptcy. However, your co-signer would still be responsible for paying the balance if you do not pay it or if that debt is discharged.
If you have a co-signer on your motor vehicle, you could sign a reaffirmation agreement and continue to make the payment. Those payments would be positively reported to the credit bureaus. Then your co-signer would not be affected by your bankruptcy filing.
If you are in a Chapter 13, the automatic stay would protect your co-signer from any collection efforts by the creditor while you are in the Chapter 13 plan. However, if the creditor is ultimately not paid in full then the creditor could try to obtain the balance from the co-debtor. As long as the co-debtor or you are current on the payment, filing for bankruptcy should not adversely affect their credit.
Generally, if spouses are co-debtors and have a lot of joint debt it is more practical for both to file for bankruptcy so one spouse is not stuck with the debt. A co-debtor being on a loan or credit line raises a lot of concerns and questions on the impact a bankruptcy filing will have.
If you have any questions about how filing your bankruptcy could potentially affect a co-debtor, feel free to contact me at (813) 463-8000.
