Typically, when spouses decide that their marriage is no longer working, the first step is to divide the marital assets, if any, and assess responsibility for paying the debt. When the debt is large, however, and the family home is underwater, it is often worthwhile to consider whether allowing the property to go into foreclosure or discharging the marital debt by filing bankruptcy are viable options.   

Separate Debt, Marital Debt and Divorce

While each spouse remains individually responsible for the debt incurred before the marriage, something known as “separate” debt, both spouses are responsible for the debt incurred during the course of the marriage, regardless of who incurred the debt. This second type of debt is called “marital” debt and is divided between the two spouses.

Filing Bankruptcy Together while Married

Of course, no one wants to start a new life with crushing debt. If the couple qualifies for bankruptcy protection, meaning that their combined income is within bankruptcy guidelines, it is often preferable to file bankruptcy while still married. This approach allows the couple to wipe out both marital and separate debt, such as credit card debt, medical bills, and other consumer debt. The effect of this is to not only alleviate the couple’s debt burden, but it also streamlines the divorce process by significantly minimizing the financial issues left to be decided by the divorce court.

Filing Bankruptcy Separately After Divorce

When the couple’s combined income is too high to qualify for bankruptcy, it is a good idea to assess whether they can each qualify individually after the divorce since the income guidelines are higher for individuals. If they both qualify to file bankruptcy after the divorce, then they can still achieve the same debt relief they would have had they filed bankruptcy together. It becomes trickier, however, if only one spouse is eligible for relief after the divorce.

The problem arises primarily with “joint” debts, or those debts in which both spouses are on the same account and are both liable to the creditor. While the bankruptcy will wipe out the creditor’s ability to collect against the filing spouse, the non-filing spouse will remain liable for the entire amount. Since bankruptcy does not wipe out the effects of a marital agreement, the filing spouse also remains liable to the non-filing spouse for the payment of any and all debts under the agreement, regardless of the bankruptcy. In this case, care should be taken to distribute the debt in a manner that will be beneficial to both spouses while minimizing disputes afterwards.

Foreclosure

If one spouse wants to keep the family home, and has the means to do so, then that spouse can refinance the home, pay the other spouse their share of the equity, and keep the home. However, if the home is worth significantly less than what is owed, then there is likely little reason to keep it. When approached like any other business decision, deciding whether or not to let the family home go to foreclosure becomes relatively simple.

Often times when money is tight, the day of reckoning eventually comes – that fateful day when you make the difficult decision to stop paying your mortgage. While the decision itself can come as a relief, it is quickly replaced with the stressful question, “How long can I stay in my home?” While the answer depends upon whether your state utilizes judicial or non-judicial foreclosure procedures, in most cases the foreclosure process takes approximately four months. Knowing what to expect, however, allows you to recognize when foreclosure proceedings have begun so that you can make solid financial plans for the future.

Missing a Payment

Most mortgage agreements require you to make a payment each month. If you fail to make that payment, your loan is considered to be in “default.” Just because you are in default, however, does not mean the foreclosure process has begun since any variety of unpredictable factors can affect your lender’s decision to initiate proceedings. To know whether your lender is foreclosing on your home, you must first determine whether you are in a judicial foreclosure state or a non-judicial foreclosure state so that you know what to look for.

Judicial Foreclosure

In judicial foreclosure states, you will know that your lender has initiated a foreclosure action when you are served with a lawsuit asking the court to sell your home due to your failure to pay your monthly payments. Depending on the time frame determined by your state, the court will hear the case, and if the lender is successful, set the sell date for the home to be sold.

Non-Judicial Foreclosure

Unlike judicial foreclosure, the courts are not involved in non-judicial foreclosure. Instead of a lawsuit, the foreclosure process is officially triggered when the lender records a “Notice of Default.” After that, the lender must wait a specified period of time before recording a “Notice of Sale.” This is the notice that tells you the date that the home will be sold. In California, for example, the lender must wait 90 days before recording the Notice of Sale. As well, the sale date in the Notice of Sale must be at least 21 days after the day the Notice of Sale was recorded in the recorder’s office.

Voluntarily Leaving or Eviction

Once the home has been sold, the next decision is whether to voluntarily leave or force the new owner to evict you through the court system. While forcing eviction may buy you more time, most evictions happen very quickly, and the additional time period may not be worth the negative impact on your credit report.

References:
California Courts: Foreclosure
http://www.courts.ca.gov/1048.htm

HUD.GOV: Foreclosure Process
http://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure/foreclosureprocess

HUD.GOV: Are You at Risk for Foreclosure and Losing Your Home?
http://portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure/fctimeline

Mortgage Banker's Association: Judicial Versus Non-Judicial Foreclosure
http://www.mbaa.org/files/ResourceCenter/ForeclosureProcess/JudicialVersusNon-JudicialForeclosure.pdf

No one likes annoying calls from creditors, especially when you’re in your golden years – those slower paced days that are supposed to be free of the everyday stress experienced during the working years. When you want the calls to stop, bankruptcy is a very effective way to bring the peace and quiet back into your life. Since most retirement funds are protected from creditors, however, filing bankruptcy may only be necessary if you have other assets that are vulnerable to the likes of aggressive collectors.

Protected Assets

Assets such as Social security benefits, 401k accounts, and most retirement and pension accounts are protected under the Employee Retirement Income Security Act, also known as “ERISA,” and cannot be touched by creditors. These same assets are also protected in bankruptcy as well, which means that regardless of whether you file bankruptcy, your protected retirement accounts are safe.

Vulnerable Assets

Not all assets are protected, however. When a creditor files a lawsuit and obtains a judgment against you, the creditor gains powerful tools to collect the debt. First, you may be required to attend a debtor’s examination where you must disclose information about assets that are not protected, such as bank accounts, your property, and your employer, if you are still employed. The creditor can then use this information to drain your bank account, sell your property and garnish your wages.

Assets in Bankruptcy

The irony is that when you are retired, the assets that are vulnerable to attack by creditors are the same assets that may be sold in bankruptcy. This doesn’t mean that you lose all of your property if you file, however. You can protect a certain dollar amount of property by declaring the property “exempt” from the bankruptcy estate. Any property exceeding the amount you are allowed to exempt will be sold and distributed to your creditors.

Do the Math

If all of your property is exempt and you want the collection efforts to stop, bankruptcy is a good option that will eliminate your debt without having to deplete your retirement funds. If you own more property than you can exempt in bankruptcy, filing bankruptcy will still make sense if the amount of debt relief you receive will exceed the dollar value of the property the trustee sells to pay your creditors. Keep in mind, however, that if your main assets consist of your Social Security benefits or a protected pension, your creditors have no recourse against you. In that case, the relief you seek may be as simple as not paying your credit card payments – and possibly changing your phone number.

References:
Superior Court of California, County of Orange: Collecting the Judgment – Plaintiff
http://www.occourts.org/self-help/smallclaims/collectingthejudgment.html

Sacramento County Public Law Library: Collecting and Resisting Judgments
http://www.saclaw.lib.ca.us/pages/lawsuits-judgments-topic.aspx

United States Department of Labor: Frequently Asked Questions about Pension Plans and ERISA
http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html

While nothing prevents a member of a limited liability company from filing bankruptcy, deciding whether it is financially prudent for you to do so is another matter. However that isn’t the end of the decision tree. It is also important to know the effect your bankruptcy may have on the LLC, especially since the consequences can be significant. As with the answers to most legal issues, the answer to these questions is predictable -- it depends.

LLC Status

A LLC is like a corporation in that it is considered a separate entity under state law. In other words, a LLC has its own individual status much like that of a person, and it is because of this status that a trustee cannot simply sell the entire LLC and distribute the proceeds to creditors. That’s the theory, at least. What happens in reality, however, may be a different story depending on who holds interest in the LLC.

LLC Interest

While the bankruptcy trustee can’t sell the LLC, your interest in the LLC is an entirely different matter. Just as your vehicle, household furnishings, timeshare and stocks are assets that become a part of the bankruptcy estate, so does your interest in the LLC. This is especially important to keep in mind if you are the sole member of a single member LLC since in that case, all of your interest becomes a part of the bankruptcy estate, which is in effect, the entire LLC.

When to File Bankruptcy

The decision to file bankruptcy is no different in this case than any other case. First, evaluate the value of your interest along with all of your other assets. Next, determine the amount of assets that your jurisdiction allows you to “exempt” from the bankruptcy estate. If the value of your interest is within the exemption limits, then filing bankruptcy may make sense. If the value of your interest exceeds your exemptions, determine whether it is worth paying the trustee to retain the interest and proceed accordingly.

The Effect of Bankruptcy on the LLC

There are two easy solutions to the three basic scenarios that arise when a LLC member files bankruptcy. First, since the trustee is interested in quick cash, you or the LLC can purchase the interest from the trustee. The second involves dissolving the LLC, selling its assets and dispersing the proceeds to the interest holders. If the trustee and LLC members cannot come to an agreement, however, the trustee may initiate litigation and put the ultimate fate of the LLC in the hands of a judge.

References:
CNN Money: LLCs and Personal Bankruptcy
http://smallbusiness.blogs.cnnmoney.cnn.com/2008/08/06/llcs-and-personal-bankruptcy/

If you feel like burying your head in the sand, you’re not alone. Everyone wants to when overwhelmed with debt. But everyone also knows that doing so doesn’t help and that eventually, the question of “how do I get out of debt” must be answered. The good news is that all debt problems can be solved and moving towards the solution can be as easy as looking at the problem.

1.  Face Your Debt

There’s no way around it -- it takes a lot of money to live and when we do our budgets, it’s easy to forget some of the sneakier expenses like oil changes  and co-pays. As such, the first order of business is to really look at how much it takes to run your life.

An easy way to do this is by using Gail Vaz-Oxlade’s online interactive budget worksheet. All it takes is plugging in your income and household expenses and in a matter of minutes, the realities of your financial situation are revealed.

2.  Review Your Property and Expenses

The next order of business is to evaluate your property. Do you have any unnecessary property that you can sell to pay off your debt? Can you sell property to rid yourself of monthly payments? Can you lower your cable payment or get rid of a storage facility? Trimming down in every area possible is important because these small expenses add up.

Caveat: Generally, it is a bad idea to dip into your retirement since it can almost always be protected in bankruptcy. Therefore, it is important to get professional advice before doing so.

3.  Decide What It Means to You

After doing the budget worksheet and evaluating your property, if you’re like most people, the result is no surprise – you’re underwater. But now you know the extent of your debt problem and can assess whether you can get out of debt yourself or whether you should consider bankruptcy.

If after selling property and minimizing bills you don’t have enough money each month to pay credit card debt, or only have enough to pay the minimum payment each month, you should consider filing bankruptcy. If, however, you can pay more than your monthly credit card payments each month, then you may be able to adjust your expenses and avoid bankruptcy all together.  

Attorney and author Cara O'Neill, Esq. has practiced law for 18 years and currently maintains a bankruptcy practice.

Tags: How to get out of debt, How do I get out of debt, How do we get out of debt, What to do with debt, What to do with debt collectors, What to do with debt problems, What to do with debt when unemployed, Debt restructuring, chapter 7 process, chapter 7 bankruptcy process, chapter 7, bankruptcy process, chapter 7 bankruptcies, what to expect with a chapter 7 bankruptcy, what is the chapter 7 process, understanding the chapter 7 process

While the bankruptcy process is daunting to most people, it doesn’t have to be.  From start-to-finish, the Chapter 7 process follows a predictable course that is spelled out below in ten distinct steps.  

If you are consulting with an attorney, you may want to take this list with you to the meeting.  Referring to it will help you organize your thoughts, trigger questions you may have about the Chapter 7 process and help you organize the answers in a manner that will be easy to find in the future.

1.  Client assembles financial documents;

2.  Attorney and client meet to review the documents and discuss the appropriateness of filing bankruptcy;

3.  Attorney prepares bankruptcy petition and client takes first online credit counseling course;

4.  Attorney and client review petition, and if accurate, the client signs the petition and the attorney files it with the court;

5.  Attorney sends out urgent notices to collectors, such as with pending foreclosures or repossessions (this does not happen in all cases);

6.  The court sends notices to all creditors, assigns a bankruptcy trustee, and sets the date for the §341 Meeting of Creditors;

7.  Attorney sends supporting financial documentation to the bankruptcy trustee;

8.  Attorney and client attend the §341 Meeting of Creditors. In Sacramento, it is located on the 7th Floor at the Federal Courthouse located at 501 I St # 3200  Sacramento, CA 95814;

9.  Client takes second online debt management course; and

10.  Attorney provides second course certificate to court and additional documents to the bankruptcy trustee, if needed.

After approximately two months, both the attorney and client receive notification of a discharge of all eligible debts and the case is closed.  The process, from start to finish, takes about four-and-half months.

While this is a generalized overview, most bankruptcies follow this course.  However, issues can and do arise depending upon the particular case which require additional appearances before the bankruptcy trustee.  Your attorney will keep you advised of any deviations and recommend the appropriate course of action.

Attorney and author Cara O'Neill, Esq. not only writes, she has practiced law for 18 years and currently maintains a bankruptcy practice at the Law Offices of Cara O’Neill.

Tags: chapter 7 process, chapter 7 bankruptcy process, chapter 7, bankruptcy process, chapter 7 bankruptcies, what to expect with a chapter 7 bankruptcy, what is the chapter 7 process, understanding the chapter 7 process

Often times, people’s expectations are out of sync with reality when initiating a lawsuit. Nothing, however, beats the fire of righteous indignation out of someone faster than nasty legal battles -- or even nastier legal bills. Costly and emotionally draining, at some point most people want to know how to settle a lawsuit.

1. Dismiss the Action

If you are the plaintiff, you can settle a lawsuit by dismissing the action. Doing so is not without ramifications, however, because if you dismiss the action before a resolution is reached, the opposing side may claim to be the prevailing or “winning” party and ask for the reimbursement of attorney’s fees and the costs of litigation. Since litigation is expensive, the opponent’s tab could be in the thousands, if not tens of thousands of dollars, and this isn’t a bill you want to be unexpectedly footing.

The way around this is to ask the opposing side for a waiver of attorney’s fees and costs in exchange for a dismissal before actually dismissing the case. Most people are willing to do so, and if agreed to, both sides will bear their own expenses and you will be out of the case.

2. Open Negotiations

If you don’t want to dismiss the action without some form of compensation, or if you are willing to pay money for the lawsuit to go away, you may want to “feel out” whether the other side is interested in settling the case as well. Because it can be tricky, thought should go into both timing and approach. If not thought out, you will likely do your case more harm than good by appearing desperate.

For the best results, commonsense says to begin negotiations when your opponent is wearing down – not after a victory. Often times, however, the opposite happens, and it’s after a loss that you want to settle. That’s where restraint comes in. It is important to come from a place of strength by formulating convincing arguments regarding why a settlement is in your opponent’s best interest and to fight against the urge to beg or give away the farm.

3. Wait Until the Settlement Conference

If you have a weak case and can’t (or won’t) get out of the action, or if you are up against a cash-rich opponent, often the best approach is to wait until the eve of trial and to settle at the pretrial settlement conference. Not only will a skilled attorney facilitate the settlement, from a psychological perspective, this is when it finally sinks in to all parties involved that trying a case is expensive and risky. Because of this, most people are willing to put settlement money on the table. If the other side won’t budge, however, this is also the best time to get a dismissal with a waiver of attorney’s fees and costs.

Related Articles: 5 Key Strategies of Negotiations

Attorney and author Cara O'Neill, Esq. has practiced law for 18 years and currently maintains a bankruptcy practice at the Law Offices of Cara O’Neill.

Tags: how to settle a lawsuit, when to settle a lawsuit, settle a lawsuit, settle lawsuit, settling a lawsuit, legal settlement, lawsuit settlement, legal settlement, settles lawsuit, settling lawsuit, civil lawsuit, civil litigation
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The first thing many people fear when receiving notice of their landlord’s bankruptcy is that they may lose their security deposit. It’s a valid concern because once filed, the bankruptcy’s “automatic stay” prohibits the tenant from collecting the security deposit directly from the landlord. As a result, the tenant’s only recourse is to determine whether the security deposit is recoverable through the bankruptcy process.

Determining Whether the Debt is Dischargeable

Since security deposits are not listed as “non-dischargeable” under Bankruptcy Code 11 USC §523, the landlord will not be responsible for returning the security deposit after filing bankruptcy. Because of this, the only way the tenant will recover the deposit is if there are enough assets in the bankruptcy estate to pay the debt.

Determining the Priority of the Debt

Debts are not all treated alike in bankruptcy, and fortunately, a security deposit is paid before certain other debts. Pursuant to Bankruptcy Code 11 USC §507, bankruptcy claims are paid in the following order:

• Secured claims
• Unsecured priority claims, such as security deposits
• Unsecured, non-priority debts

Since security deposits are classified as unsecured priority debts, they are paid after secured claims but before unsecured, non-priority debts, such as credit card debt. Therefore, if estate assets exist, the tenant may recover the security deposit. Often times, however, estates do not have assets to distribute to creditors. If this is the case, the tenant loses the deposit.

How to Claim Payment of a Security Deposit

After the §341 Meeting of Creditors, the bankruptcy trustee declares whether the case is an “asset” case or a “no asset” case. In asset cases, the creditor must file a Proof of Claim asking for payment of the debt. The form can be found on the bankruptcy court’s website. The priority box for Bankruptcy Code 11 U.S.C. § 507 (a)(7) should be selected and proof of the debt attached.

In Cases of Fraud

Debts can be disputed and potentially omitted from discharge if fraud is involved. For this to occur, however, the creditor must ask the court for a fraud determination by filing an “adversary proceeding.” An adversary proceeding is like any other lawsuit in that the litigants conduct discovery, attend status conferences, and if a settlement is not reached, the case is decided at an evidentiary hearing. Unfortunately, like all lawsuits, pursuing an adversary proceeding is expensive and will likely cost more than the actual security deposit.

Cara O’Neill, Esq. is an author and accomplished trial attorney who has served as an Administrative Law Judge and taught undergraduate and graduate legal courses for a well-known university. 

She currently maintains a bankruptcy practice in Roseville, California at the Law Offices of Cara O'Neill</a>. Information about her law practice and writing can be found on her website at caraoneill.com.

References:
United States Courts: Discharge in Bankruptcy
[http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/DischargeInBankruptcy.aspx]                                                                        
Legal Information Institute: Bankruptcy Code 11 USC §523 – Exceptions to Discharge
[http://www.law.cornell.edu/uscode/text/11/523]

Legal Information Institute: Bankruptcy Code 11 USC §507 – Priorities
[http://www.law.cornell.edu/uscode/text/11/507]

National Association of Bankruptcy Trustees: What are the Duties of a Bankruptcy Trustee?
[http://www.nabt.com/faq.cfm#Q70]

United States Courts: Discharge in Bankruptcy: Bankruptcy Forms
[http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_Official_2010/B_010_0410.pdf]

United States Bankruptcy Court District of Nevada: Adversary Proceeding Filing Requirements
[http://www.nvb.uscourts.gov/filing/filing-requirements/adversary-proceeding/]

Tags: security deposit in bankruptcy, discharge of security deposit, can landlord discharge security deposit

Lenders almost never agree to voluntarily take a responsible party off of a loan, and it is understandable why. It is not in the lender’s best interest to let one of the responsible parties out of the obligation. Even so, with good planning and by employing a strategy that doesn’t require lender approval, it can be done.

1.  The Typical Situation

It is unfortunate when relationships grow apart, but it happens, and when it does, property must be divided. If neither party wants to retain the home purchased together, the decision is an easy one; sell the house.

The problem arises, however, when one partner wants to stay in the home while the other wants a clean break without the burden of remaining on the mortgage. That’s when the question “How do I get out of a joint mortgage” surfaces. Fortunately, there are two effective ways to get out of a joint mortgage without the consent of the lender.

2. Refinancing

Refinancing is the obvious answer and most people know that a party can be removed from the loan through refinancing. Often, however, refinancing is not an option because one partner does not have sufficient income to qualify. That’s when the second, less known option should be considered.

3. Bankruptcy

A Chapter 7 bankruptcy will not affect the status of a home when the mortgage payments are current. The partner who does not want to remain on the mortgage files bankruptcy and states his or her intent not to retain the home. The result will be that the filing party’s liability on the mortgage will be discharged while the non-filing partner retains the home. Once complete, a quit claim deed takes the filing partner off title.

Of course, it may be difficult to purchase another home for at least two years after filing bankruptcy, but if waiting is not a problem, and if the filing party qualifies for a Chapter 7 bankruptcy, this method effectively takes care of the problem for both partners.

4. Other Considerations

Filing for both bankruptcy and divorce has serious financial consequences that should be thoroughly considered before proceeding forward. There are circumstances when both parties should file together before filing for a divorce and times when it is in the best interests of one or both partners to file separately. Given the complexity of the related issues are well beyond the scope of this article, it is wise to seek legal counsel before finalizing an overall separation plan.

While a bankruptcy will appear on your credit report for ten years, most people are surprised to find that credit scores often go up significantly after filing for bankruptcy. This is an especially well-received discovery since “what happens to my credit after bankruptcy” is a common question most people have when deciding whether or not to file. 

Of course, it is good to plan on operating on a cash-only basis to prevent finding yourself in the same situation again. If you are employed and can demonstrate an income, it is possible to “rebuild” credit quickly and to regain access to credit for large purchases such as cars and homes.

Credit Cards after Bankruptcy

After bankruptcy, it is common for clients to receive offers for credit cards, and when you understand the reasoning behind it, it makes sense. The lenders know that your bankruptcy wiped out all of your dischargeable debt. This means you have more discretionary money to spend than you did before your bankruptcy. They also know that you can’t file a Chapter 7 bankruptcy for another eight years, and this means they have lots of time to collect by garnishing your wages if you don’t pay your bill. 

Cautionary Point: Don’t make the mistake, however, of accepting low limit cards or cards that you secure with your own funds. These actually hurt your credit score.

Car Purchases after Bankruptcy

It is also common for clients to receive offers to finance new cars very soon after filing bankruptcy – and often at very desirable interest rates. The reasoning behind it is similar to the reasoning of the credit card lenders, with one notable and important exception: if you don’t pay for the car, the lender will repossess it. Since most people need transportation for work, they pay their car payment before other expenses making you a good risk. 

Home Purchases after Bankruptcy

Some people worry that a bankruptcy will prevent them from purchasing another home. With the amount of bankruptcies filed as a result of our current (and ongoing) economic downturn, if true, even the remaining banks would go out of business. The standard waiting period for purchasing a home after bankruptcy is two years.

If a foreclosure is involved, the waiting period is anywhere from three to seven years depending on the circumstances. Given the ongoing real estate crisis in many areas, the wise thing to do may be to give it time and work towards saving a sizable down payment.