When declaring bankruptcy, it is very important to consult with an attorney that is experienced in bankruptcy law and the workings of the Federal Courts. Attorney Johnson is the only attorney admitted to the Federal Court in southern Sturgeon Bay. He has been helping people obtain financial relief in the Federal Courts for more than three decades.
Often referred to as a ‘complete bankruptcy’ by individuals, filing a Chapter 7 bankruptcy means that an individual is asking the Federal Court to discharge all of the person’s debt. The key word here is ‘asking’; while the individual is asking to have all of their debt wiped away, it is up to the Court to decide whether each debt is discharged. Your attorney will be able to advise you on your debts and to properly ask the court for special considerations as needed.
- 4 Types of Relief
- Marital Property Issues
- Child Support and Spousal Support & Maintenance
- Protecting Your Property Settlement Award
- Bringing a Non-Dischargeable Action
- Spouse’s Income
- Budget & Credit Counseling
- What to Bring to my Attorney
4 Types of Relief
Bankruptcy protects the debtor from debt collection by creditors. A debtor may file for bankruptcy, which is called “voluntary bankruptcy,” or a creditor may petition the court to declare the debtor bankrupt, which is called “involuntary bankruptcy.” Involuntary bankruptcy is allowed only under chapter 7 or chapter 11 of the U.S. Bankruptcy Code.
There are four types of relief available to individuals or corporations under the Bankruptcy Code:
- liquidation (chapter 7)
- reorganization (chapter 11)
- debt adjustment for a family farmer (chapter 12)
- debt adjustment for an individual with a regular income (chapter 13).
Municipalities may file for bankruptcy under chapter 9. Generally, not all debts are repaid in a bankruptcy. The court determines which debts are to be repaid according to their priority, and the debtor is typically granted a discharge from unpaid debts that are dischargeable under the Bankruptcy Code.
Marital Property Issues
Debts incurred during your marriage, and while both spouses reside in Wisconsin, are presumed to be in the interest of your marriage and family. For a debt that meets these conditions, a creditor can go after all of the marital property that you and your spouse own, plus the individual property of the spouse(s) who created the debt.
A Marital Property Agreement is an agreement made between spouses who are either living together or separated. The purpose of such an agreement is to specify the details of their financial relationship and to limit the liability of each spouse for the other spouse’s debt. In addition, creditors must be informed of this agreement and must be given a copy of it before any debt is created.
Section 523(a)(15) was interpreted by some courts to permit discharge of a portion of the property settlement because it was determined that the debtor had the resources to pay part, but not all. In a 1995 California case, In re Comisky, the issue was whether a debtor who had received the marital home pursuant to the property settlement and who was paying support in good faith was obligated to pay his former wife an amount that represented her interest in the marital home. The debtor, who was unable to make mortgage payments on the house, lost it to foreclosure, owing his former wife $18,000.
The court noted that neither party was legally or equitably at fault and that the detriment to the wife if she were not paid was equal to the benefit to the debtor if he did not have to pay. The court determined that the debt’s discharge in this circumstance depended solely on the debtor’s current and future ability to pay. The Comisky court concluded that section 523(a)(15)(A) did not mandate an all or nothing remedy. The court determined that the debtor could pay part of the $25,000 owed to his former wife over a reasonable period of time, as well as the alimony payments of $772 a month, because the debtor had the potential to earn additional income through part-time teaching. The court granted a discharge from $15,000 of the property obligation.
Child Support and Spousal Support & Maintenance
Support and maintenance obligations to children and a former spouse have always been immune from discharge in a bankruptcy proceeding. However, prior to the 1994 Amendment to the Bankruptcy Act, the Bankruptcy Code permitted a debtor to discharge that portion of a financial separation agreement that was in the nature of a property division obligation.
Throughout the years there has been extensive litigation in bankruptcy courts to determine whether an award designated as a “property settlement” actually provided a support function; if so, it was non-dischargeable. If the bankruptcy court determined that the award was a property settlement, the amount owed was discharged. Despite the tests used by the various circuits to determine whether an award was property or support, the distinctions were frequently unclear because components of each settlement agreement are often related.
The 1994 Bankruptcy Reform Act addressed the support/property dilemma by broadening the protection for the entire settlement agreement. New Section 523(a)(15) enables the creditor spouse to prevent the discharge of the property component of the settlement by filing an adversary action in the bankruptcy court. The creditor spouse must prove that the detriment to her/him if the debtor did not pay the obligation would be greater than the benefit to the debtor.
Section 523(a)(15) grants a discharge of the property settlement to a debtor who cannot support himself or his dependents or a debtor who would lose his business by paying the property obligation. Under this new provision, the court balances the benefits and the burdens to the parties, considering factors such as the amount of the debtor’s exempt property, the income of both parties and the number of dependents of each. Another significant factor courts consider is whether the non-debtor spouse will be liable to creditors if the debtor spouse fails to pay debts assumed under a hold harmless agreement, thereby increasing the non-debtor spouse’s burden.
In a 1996 Georgia case, Cleveland v. Cleveland, the court considered the totality of the divorced parties’ circumstances and projected income. The court concluded that the debtor’s income combined with that of his live-in companion left him with discretionary income sufficient to make payments towards the hold harmless settlement obligation owed to his former spouse. The court stated that the detriment to the former wife clearly outweighed the benefit of $700 of discretionary income to the husband because the wife would be forced into bankruptcy if she had to assume the new debt. However, the court will discharge a hold harmless settlement obligation to third parties if paying the debt would reduce the debtor’s income below the amount necessary for the support of the debtor and the debtor’s dependents.
Protecting Your Property Settlement Award
- As soon as you learn that your former spouse has filed for bankruptcy, contact an attorney with bankruptcy expertise.
- Your attorney will obtain a copy of the debtor’s bankruptcy schedules to determine whether your debt is listed.
- If your debt is listed, your attorney may next file a Notice of Appearance with the bankruptcy court clerk. This notice will guarantee that the clerk will inform you of all developments in the debtor’s case.
- If Child Support is involved, your attorney may file a Notice of Intervention of Child Support Creditor, a Proof of Claim with the bankruptcy court clerk and serve the debtor, debtor’s counsel and the bankruptcy trustee with this Proof of Claim. Filing the Proof of Claim permits you (and your attorney of course) to appear in bankruptcy court and to object to any chapter 11 or 13 plan that may not treat you fairly.
- Within 59 days of the date set for the debtor’s creditor meeting, your attorney may also file a non-dischargeability adversary action in bankruptcy court pursuant to Section 523(a).
Bringing a non-dischargeable Action
The procedure for challenging the discharge of a property settlement agreement is stringent. The former spouse must bring an adversary proceeding in bankruptcy court within sixty days of the first meeting of creditors. If the former spouse does not file a motion within the time limit, the property settlement debt is automatically discharged. Although Section 523(a)(15) does not require that the challenge must be limited to the child or spouse of the debtor, it appears unlikely that Congress intended to permit third party creditors to bring an action against discharge pursuant to this section. The Hon. Margaret Dee McGarity, Bankruptcy Judge for the District of Wisconsin, in a recent article noted that the legislative history indicates that section 523(a)(15) should be interpreted as an extension of 573(a)(5) which protects from discharge debts to children and spouses but not to third parties.
In a 1996 Connecticut case, In re Celani, the remarried wife, a debtor, owed her former husband $65,000 pursuant to the property settlement. Her husband claimed that the court should weigh the debtor’s new husband’s income in determining whether the benefit to her of discharging the property settlement outweighed the detriment to him. The wife argued that, because the court could not consider her new husband’s income in determining whether she could pay the debt, it also should not consider his income in balancing the benefit and detriment. The court stated that the balancing test pursuant to Section 523(a)(15)(B) did not limit the inquiry to the debtor’s income alone, but required an expansive review of everything, including the financial circumstances of new spouses. Thus, the court concluded that, although under 523(a)(15)(A) a new spouse’s income cannot be considered in determining whether the debtor has the ability to pay, pursuant to 523(a)(15)(B) the extent to which a new spouse’s contributions or expenses impact on the debtor should be relevant in balancing the equities.
Budget & Credit Counseling
The Financial Information Service Center, FISC, offers counseling to help people discover their own solution to financial challenges. Through this service, the counselors help people to set up an effective money management plan.
FISC counselors will:
- Work with couples or individuals and help them set up a workable, realistic budget.
- Promote communication by talking about money.
- Teach people how to get out of debt and stay out of debt.
- Help people strategize through a financial crisis.
FISC charges a small fee for their services; however, they say that they will help anyone work out a solution regardless of the fees.
The Consumer Credit Counseling Service, a division of FISC, offers debt management services to discover new easy to deal effectively with money and provides information to help people learn:
- What a debt management plan can do for them.
- How to deal with creditors.
- Strategies for surviving bankruptcy.
- How to interpret a credit report.
What to Bring to my Attorney
- A complete list of all of your debts.
- Any contracts that you have signed, including student loans, automobiles, and business loans and ownership agreements.
- Any court orders, including those regarding your income, payments you must make, such as Child Support, and garnishments.
- Deeds to any property you own.
- Mortgage contracts for your permanent residence and any other property you have mortgaged or are a party to the mortgage.
- Titles to any property you own, such as your automobile(s).
- Your income tax returns for the past five years.
- Your current employer’s wage statements for the past year.
Debt Management Plans are set up with creditors to pay off debts in a reasonable time-frame, while allowing the client to support reasonable living expenses. Lower payments and lower interest rates are often available to create an environment for success. Debt Management Plans are voluntary programs that serve the dual role of helping people to repay their debts and helping credits to receive the money owed to them.
FISC also offers a Power of Money Workshop, where families can receive professional guidance, whether it is creating a sound budget, a repayment plan to creditors, or basic financial advice on where to cut expenses. The Power of Money workshop is designed to help you achieve a positive new habit in life: controlling your financial situation.
Presentations and workshops are available and can be tailored for any group, club, classroom, etc. To learn more about these and other programs, contact the local FISC office in Sturgeon Bay at (920)- 743-1862.
We are a debt relief agency. We help people file for bankruptcy relief under Bankruptcy code.