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.
If you sell your homestead prior to filing your bankruptcy case, the trustee can look to see how that money was spent.
For example if two years ago you received $50,000 from proceeds from the sale of your house, how was that money spent?
Did you use the money on reasonable expenses? Did you pay back your creditors? Did you spend it frivolously? Did you incur debt at the same time or after receiving that money? Your case filing has to be in good faith where you didn’t incur debt with the intention of filing for bankruptcy.
You have to make an effort to pay off the debt but genuinely be unable to do so. Taking that example, if you took that $50,000 and gifted it to a family member the trustee could go after your family members for repayment of the $50,000 and use that money to pay your creditors.
If you took a vacation or spent the money frivolously instead of paying your creditors, the trustee would argue that you did not file the case in good faith and you would need to repay that money to the trustee. Generally, it’s better not to transfer property just prior to filing your bankruptcy case. Make sure any profits are accounted for from the sale. Keep receipts.
If there is a divorce order requiring that the property be sold, that is fine, but the money would still need to be accounted for. If you split the homestead profits with an ex, we would need to look too see if that person was also on the deed to the property and determine if they were entitled to 50% of the equity. If they have a 50% interest in the property but you give them 100% of the home sale proceeds without a divorce order that could be construed as a gift. The trustee could reverse the sale or go after your ex-spouse to receive your portion of the sale proceeds to pay your creditors.
If you are considering selling your home its best to wait until your bankruptcy case is concluded or you can potentially waive your homestead exemption by putting your property on the MLS or under contract. If you bankruptcy case is pending, you would need the court’s permission to sell the property. The trustee or any creditors could potentially object to you using the homestead exemption. Before deciding to transfer any property its always best to consult with your attorney prior to doing so.
People often ask how to rebuild their credit after filing bankruptcy or how bankruptcy will affect their credit. I am often asked if filing for bankruptcy will destroy credit for 10 years. Most clients are surprised at how quickly their credit rebounds after filing their cases. The ability to get a credit card or loan after filing is relatively easy to do. Of course, we don’t recommend incurring debt during or immediately after filing but getting a credit card is typically achievable. By getting a small secured credit line at your bank where you are putting in a collateral of cash in a deposit account can rebuild your credit. Additionally, becoming an authorized user on someone else’s credit card will also help build good credit history.
Making other payments such as your car payment on time will help rebuild your credit. While it’s not unheard of to get a car loan upon filing for bankruptcy, most car lenders will require a discharge which happens 90 days after filing your case in order to get a car loan. Bankruptcy allows you to surrender a car that is underwater without having to pay anything to the lender. This allows people to buy a car outright or get new financing and a lower car payment without having to trade in a car with negative equity.
Regarding home loans, there are different types of home mortgages that you could be eligible for. In order to qualify for a conventional mortgage, it can take anywhere from 2 years to 4 years from the date of your discharge. To qualify for an FHA or VA loan, it may take as little as 1 year and up to 2 years from your date of discharge. I recommend once some time has passed after you receive your discharge to contact a licensed mortgage broker to see what type of loan you might be able to qualify for.
Should you have any questions, feel free to contact my office at (813) 463-8000 and we would be happy to answer any of your questions or concerns.
Whether you are married or separated, you can still file for bankruptcy on your own. There is no requirement that your spouse file for bankruptcy.
Chapter 7 or Chapter 13 Bankruptcy?
If you are married and maintaining the same household, then the trustee will consider your joint income to determine if you are over the median income qualifications for a Chapter 7 bankruptcy or to determine what you are financially able to repay in a Chapter 13 bankruptcy.
If you are separated and maintaining separate households, you expenses should also be listed separately.
Contact Gina Rosato Law Firm, P.A. to discuss your Bankruptcy Options
It is common for a bad financial situation to spiral into marital discord. One spouse may incur a significant amount of debt, fail to work for an extended period of time, or does not consult the other spouse when making purchases on joint accounts.
Divorce and Bankruptcy
If you and your spouse have a significant amount of joint debt it may be best to entertain bankruptcy as an option prior to filing for divorce. Bankruptcy is a much cheaper alternative to racking up a large bill with a family lawyer to argue about who is going to take over which debts when both people may be able to get rid of all the debt.
Furthermore, your spouse cannot assume your debt in a settlement agreement. For example, if you have a joint judgment against you from Company A for $50,000 and your divorce decree says your spouse should assume all debt from Company A. Company A can still pursue you for the debt despite what your divorce decree says. You would then have to sue your spouse to recover what you paid Company A. Therefore, if both spouses owed money to Company A, that could have been discharged in a bankruptcy, that would obviate the need and expenses to file suit against the other spouse for collection of debt after the divorce is finalized.
Contact Gina Rosato Law Firm to discuss your Bankruptcy Options