When I meet with a married couple that are considering a Chapter 7 bankruptcy, one major consideration that needs to be addressed is whether or not to file for both, or only one of the spouses.

I practice in Louisiana.  Louisiana is a community property state.  This means that all the assets acquired after the marriage and all of the debts incurred after the marriage are owned and owed by both spouses equally.

The joint ownership of the debts and assets by both spouses has advantages and disadvantages to a couple:  the disadvantage is that a creditor of a Louisiana debtor can go after both the separate assets and community assets of either spouse to satisfy the debt owed to that creditor.   (There are issues of reimbursement by one spouse to another spouse for the use of their separate property to satisfy a community debt that are not important to this discussion.  Also, this discussion does not address the rights of a couple to enter into a prenuptial agreement and the effect such an agreement would potentially have on the rights of creditors).

The advantage is that either spouse can file individually in a community property state and discharge the community debts.

Why is this the case?

Because when a bankruptcy is filed you must include all of your assets and debts.  Section 541(a)(2) of the bankruptcy code includes community assets as assets of the “Estate.”

There are many practical reasons to have only one spouse file:

• The filing gives both the debtor spouse and the non-debtor spouse an automatic stay of all collection proceeding, including repossessions, as well as legal proceedings, such as foreclosures and  garnishments;
• The discharge covers both spouses; and,
• If necessary, the non-filing spouse could, if necessary, file another Chapter 7 at a later time.  This can be particularly important if the couple has additional financial issues, and less than 8 years has passed since previously filing.

There are some reasons why both spouses may want to file anyway:

• In some states that use state exemptions, the spouses may be able to get a larger homestead exemption for their house.  Some states allow each spouse to claim a homestead exemption on real estate, and some states have a larger homestead exemption for a married couple than is permitted for an individual.  This can be particularly important if the home has more equity than is permitted under state law.  (Since the Louisiana homestead exemption of $35,000.00 is a single exemption regardless of whether the debtor is an individual or a couple, this is not an issue for my clients).
• There are some Courts that have ruled that since only the community property is protected by the discharge, the creditor is still free to go after the separate property of the non-filing spouse to satisfy the community debt.
• There is debate within the legal community as to whether or not a creditor can continue to contact a non-filing spouse about a discharged debt; and,
• As BLN writer David Leibowitz pointed out in his article Can I file bankruptcy without my wife?  Can I file bankruptcy without my husband?, you will still need to include the full income of the non-filing spouse when determining income for purposes of the household means test income.

The decision of whether or not to file as an individual or a couple, as well as the decision on the right type of bankruptcy to file, should only be made after consulting with an experienced bankruptcy attorney.

There’s a good recent post here on the Bankruptcy Law Network about non-filing spouses — Springfield, and Marlborough, Massachusetts’ attorney Jed Berliner’s article on “non-filing” spouses. He wrote about the impact on the means test.

There are more implications, at least when  you are in a state like New Mexico, with community property and community debt.  There are several ways this can come up — Jed speaks more to the situation where the spouses are still living together. There’s also the situation where the spouses have separated, but have not gotten a divorce or a legal separation. That has complications, too, such as cooperation when things are no longer sweet music and roses between you.

Generally, I have to tell a client in this situation something like this, after having advised them, first, to have the non-filing spouse get legal counsel and possibly also file bankruptcy — this advice assumes the non-filing spouse is unwilling or unable to file for bankruptcy and is not or may not fully cooperate with my client:

Your spouse is not willing to also file for a bankruptcy. Thus, you will be filing as married, with a non-filing spouse. That has several implications, including:

1. Because you are still married and this is a community property state, the legal presumption is that all income made by each of you is still community income, and all debt incurred by each of you is still community debt.
2. You will need to request full income and asset, and expense and debt information from your spouse. If he or she does not provide it, we will so indicate on the papers filed with the Court.
3. You can “claim” the non-filing spouse’s share of the “homestead” exemption in the house, even though he or she is not filing.
4. Your non-filing spouse will have some protection against creditors for debts you also signed for and for which you get a discharge, so long as he or she is still married to you and you are alive. Once there is a divorce or you die, creditors can go against the non-filing spouse for debts for which you received a discharge.
5. Your discharge of debts in bankruptcy may  not defend you against claims your non-filing spouse may make against you in a divorce later.

I also inform clients that this can complicate their cases, which can mean their cases will take more time and cost more than an uncomplicated case.

This situation is an especially good one to be sure you get legal advice!

Gini Nelson is a Santa Fe, New Mexico bankruptcy lawyer who helps people file (or avoid) chapter 7 bankruptcy.

The shocking realization is that your spouse might have to contribute to your Means Test-required payments even if you file alone.   You aren’t happy about this at all.  ”But they’re my debts.  Why should my husband or wife have to contribute?”  Because that’s the law.  Your income includes all regular contributions to the household expenses of yourself and your dependents, including those from your marital partner.

The Marital Adjustment is how we get to deduct your spouse’s separate expenses from your income.  They must truly be separate, like accurate payroll withholdings.  But it’s not enough to say that the s/he has separate credit card charges.  For example, a charge for food, clothes, furniture, or even gasoline or car repairs could be a regular contribution to the household expenses of yourself or your dependents.

How about separate mortgage payments by your spouse for a home you live in but don’t own?  OUCH !!  Courts are giving us different decisions, even if in they are in the same state (although different districts).  Compare In re Trimarchi, 421 B.R. 914 (Bankr. N.D. Ill. 2010) (is part of the debtor’s income) with In re Clemons, 2009 Bankr. LEXIS 1959 (Bankr. C.D. Ill 2009) (deducted separate expense).

An angry husband or wife might simply refuse to cooperate, but you cannot file your bankruptcy case without the that income and expense information.  The information must be accurate, of course, because the Means Test form is signed under penalties of perjury.  Documents must be provided or there’s no Marital Adjustment deduction.  See In re Dugan, 2008 Bankr. LEXIS 2813 (Bankr. D. Kan. 2008). 

Are you ready to subpoena your angry partner?  I hope that your spouse, instead, will see the benefit to your entire family of you getting out of debt.

An Oregon attorney, Derrick McGavic is being disciplined for FDCPA violations as announced by the Oregon Attorney General’s Office this week.    Derrick McGavic, a Eugene, Oregon attorney whose law firm sued consumers for credit card companies and debt collectors, agreed to submit his resignation to the Oregon State Bar.   In addition, McGavic & Finney, P.C., the law firm under which McGavic practiced, is to be closed with McGavic’s partner, Kristan Finney, allowed to continue to practice, but with restrictions under a stipulated agreement with the Oregon AG’s office.  McGavic will also pay a $70,000.00 fine.

Mc Gavic & Finney’s  collection activity generated more than 90 complaints to the Attorney General’s office.  Those complaints were entirely separate than the complaints made to the Oregon State Bar about how McGavic collected debts for national creditors and national debt collectors and the news reports have been on websites ranging from consumer forums to the ABA Journal Daily News

Mr. McGavic made headlines back in 2008 after settling a series of lawsuits alleging that his office had violated the Fair Debt Collection Practices Act when the Oregon State Bar began an investigation after reports began being made to the bar regarding the office’s actions.  In addition, Bud Hibbs of www.ripoffreport.com had posted complaints since 2007.

According to the press release:

McGavic & Finney specialized in representing national debt collectors that buy defaulted consumer obligations in massive quantities on the secondary market – often for pennies on the dollar.

Consumer complaints filed with the Oregon Department of Justice accused McGavic of systematically ignoring debtor protections and rights afforded under the Oregon and Federal Debt Collection Protection Acts. For example, McGavic allegedly misidentified or purposefully confused the identity of creditors in documentation to delay consumers’ response and thus increase fees and interest payable to McGavic and his clients.

Notices issued by McGavic allegedly omitted specific information related to the amount of the defaulted debt and failed to provide proper verification of debts when requested by consumers. Similarly, McGavic allegedly repeatedly called debtors who had requested in writing not to be called.

The Department of Justice’s investigation also uncovered McGavic’s pattern of falsifying fee affidavits in Motions for Default Judgments by claiming services he did not perform. In addition, McGavic allegedly provided his office staff with a schedule to be used to arbitrarily increase the fees claimed – depending on the amount of money claimed or the venue of the action.

The question remaining at the end of the day?   What happens to those fraudulently obtained judgments?   What help will be given to consumers who have been victimized by these predatory practices and who perhaps lost money illegally–with the money long ago paid to the debt collection companies or debt buyers?

And the moral of the story?   Little voices can make a big noise when joining together.   If you have been the victim of abuse by a debt collection or a law firm representing a creditor, debt collector, or a debt buyer, call the Attorney General Consumer Protection Division in your state and complain until your voice is heard.

The Defense of Marriage Act [DOMA] , 1 U.S.C. 7, defines the word spouse in federal law to only include a person of the opposite sex.  DOMA has been cited to preclude same sex married couples or couples joined by same sex civil unions from jointly filing bankruptcy.  A February 23, 2011 order from President Barack Obama prevents the Justice Department from enforcing this law and now clouds the issue.  Same sex couples might now be permitted to file bankruptcy.  At least they should try.

The Justice Department of the United States of America, which oversees federal bankruptcy cases through its U.S. Trustee Program, vigorously defends DOMA against same sex couples filing bankruptcy and against constitutionality arguments.  Or at least it did until President Obama instructed the Justice Department to end that practice.

Laws regarding marriage are generally determined by states, however,  DOMA prevented federal recognition of state authorized same sex marriages.  Does this mean same sex couples can file bankruptcy?  No, not necessarily.  DOMA remains on the books and Courts are free to uphold and apply the restrictive definition of an opposite sex ‘spouse’ to existing cases.  Also nothing prohibits creditors from raising the issue.   The test or death of DOMA may soon occur as federal courts in three states, Connecticut, Massachusetts and New York, are considering the constitutionality of DOMA in various cases, now without opposition from the Justice Department.

With the US Department of Justice out of the way, will same sex couples enjoy unfettered access to courts or will a cottage industry of creditors spring up to defend DOMA for moral reasons?  Time will tell, but the time is now for same sex married couples, and those joined under state civil unions, to seek equal treatment under bankruptcy law.

See Same Sex Marriages and Bankruptcy: A Benefit for a contra discussion of the benefit of not filing jointly.

Of course you love your sweetie.  Honeybunches is your best baby.  And I’m sure that snookums is true blue to you in every way. Have you checked your credit?

Financial infidelity is a leading cause for divorce, not to mention bankruptcy.  For better or worse, your marriage is a financial partnership as well as a legally recognized relationship.  While you are not necessarily liable for your spouse’s debts incurred during marriage, except in a community property state like California or Wisconsin, it’s really important to know where you and your spouse stand so far as money is concerned.  A third of American couples with combined finances say they have committed financial infidelity, with both sexes lying to their partners in equal numbers, according to a Harris Interactive poll released in January

During my first marriage, I frequently found myself unpleasantly surprised at the end of the year.  I’d get nice year-end bonuses and think that my family finances were in good shape. Then I would find out that my then-wife had been holding out on me the fact that she had run up substantial credit card bills.  Men are equally as bad as women in lying to their spouses about their finances.

Open and honest relationships are critical to the success of any marriage.  And openness and honesty about financial matters is just as important.

Here are some of my suggestions for a happy financial marriage:

• Both you and your spouse should have full on-line access to all financial accounts
• Both you and your spouse should review each other’s credit reports at least once a year
• Both you and your spouse should sit at the kitchen table periodically to agree upon the family’s financial objectives for the year.
• Both you and your spouse should design a mutually agreed upon family budget – maybe not down to the penny but at least as to the big items.
• Both you and your spouse should agree on major financial goals for the family and agree on actions you’ll take in order to reach them.

The family that saves together, plans together, and budgets together stays together – and avoids bankruptcy too.

The “family-friendly” Congress elected in 2004 did an odd thing in 2005 when they passed BAPCPA, the bankruptcy “reform” law.  In the process of ignoring how the American family has evolved since “Father Knows Best” was a television mainstay, they encouraged the break-up of the indebted family.

The Eighth Circuit Bankruptcy Appellate Panel, in effect, reached the same conclusion in 2010.

In this case, a couple were separated and maintaining two separate households.  They had separate income and expenses.  And each household, by itself, would be considered “below-median” under the means test.  That would make that individual more likely to qualify for Chapter 7 relief.  In this case, the spouses chose to file Chapter 13 instead.

But Chapter 13′s means test has a nasty sting in it because Congress seemingly could not imagine anything except the standard family unit of 2 parents, 2.5 children and a dog.  But for the non-standard family –  Both spouses’ incomes must be counted to determine whether the debtor — either spouse on their own or filing jointly — is above or below-median income.  This implicates the complexity of the means test analysis but, more importantly, it forces the debtor to propose a 5-year plan.  If they were treated as separate, below-median income households, they could propose as little as a 3-year plan.

So because the couple in this case chose to remain marred, their incomes were counted together which made them “above median.”  Thus, they were forced to propose a longer payment plan.

I have written about this marriage punishment before in more detail.  Nevertheless, it is still a little shocking to see it in action.

If and when Congress sees fit to revisit the massive error know as BAPCPA, one would hope that it will consider how families live today.  Not relying on anachronistic views of how they wish families were still ordered.

The case in In re Harman, #10-6025 (8th BAP 9/3/10).

Photo Credit: Kai Schreiber

When filing bankruptcy, one of your most important assets (a fancy word for property)  is your real estate. All interests you have in real estate must be listed on Schedule A of the bankruptcy paperwork.  You think this is easy? Usually it is. But here are some pointers.

Be sure you know what interest in real estate you have when filing for bankruptcy

When couples are filing bankruptcy, they may own property  in several different ways, all of them having different consequences:

• Joint tenancy
• Tenancy by the entireties
• Tenancy in common

Not only that, but some places, real estate may be community property.

It’s very important to list exactly what you own.  You are supposed to list what the value is of your particular interest in each asset.   If you are filing a bankruptcy case individually, but you share ownership of some real estate with somebody else, list the value of your share of the real estate.

Another tricky issue arises when you own property in partnership with someone else.  In this case, don’t list your property on Schedule A.  The real estate belongs to the partnership and you have a partnership interest which is personal property. The same thing is true if your real estate is owned in a limited liability company or trust, which is often the case.

It’s also a good idea to be really sure who has what liens against the property.  When in doubt order a title search.

More about real estate next time.

Filing for bankruptcy and filing for divorce often go hand in hand.  This is unfortunate, but the news isn’t all bad.  I believe that filing for bankruptcy can help save some marriages by eliminating overwhelming debt, which is a a major source of stress that causes marriages to break up.  Even in cases where divorce is imminent, discharging debts can make the process easier by eliminating fighting over the division of debt and who has to take on the burden of debt payments.  It can free up income to pay for the support of two households and child support if payments on credit cards and loans don’t have to be made.

I read an article recently that seemed to imply that bankruptcy caused divorce, and that a couple who files for bankruptcy increases their chance of divorce, but I don’t believe that is true.

Of course, financial stress is a leading cause of marital problems so it is no surprise that many bankrupt debtors also divorce.  Divorce, job loss and medical problems are part of the lives of many bankrupt debtors.

According to Elizabeth Warren in a NYT article:

Many people in bankruptcy were solid bill payers until something knocked their legs out from under them. For two-thirds of these people, it was loss of a job, for 40 percent it was a serious medical problem and for 20 percent it was the economic fallout of divorce.

Divorce may be a factor leading to bankruptcy, but bankruptcy doesn’t cause divorce.    If you are considering divorce, ask your attorney about bankruptcy and whether or not it can help with the debts your family is dealing with.  If your divorce attorney doesn’t know the answer, a good bankruptcy attorney will.

My greatest pleasure comes not from advising clients how to have bankruptcy help a divorce, but from the clients who tell me that dealing with the debt by filing for bankruptcy helped save their marriage.

See also: Does Bankruptcy Cause Divorce? by Rachel Lynn Foley Kansas City MO Bankruptcy Attorney

I Thought Bankruptcy Was Supposed To Cure My Money Troubles byRachel Lynn Foley Kansas City MO Bankruptcy Attorney

How Bankruptcy Helps To Balance Your Budget by Susanne RobicsekCharlotte North Carolina Bankruptcy Lawyer

Budgeting is Critical in a Chapter 13 Bankruptcy Case by Adrian Lapas, Eastern North Carolina Bankruptcy Attorney Goldsboro NC Bankruptcy Attorney

Bankruptcy Can Help You Find A Debt Free Life by Susanne RobicsekCharlotte North Carolina Bankruptcy Lawyer

There are times when only one spouse in a marriage will want to file for bankruptcy.  Some of the factors to consider in determining whether spouses should file a joint or separate bankruptcy are discussed by New Mexico Bankruptcy Attorney Gini Nelson in her article  Must the Non-Filing Spouse’s Information Be Disclosed? 

Unfortunately, even when only one spouse files for bankruptcy, the bankruptcy code requires that the income of both spouses must be included to determine the household income for purposes of the Means Test.

Ironically, only the actual financial contribution of a non-spouse room mate or significant other is used in calculating household income.