Should I file chapter-7 bankruptcy before or after my divorce?

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One of the leading causes for bankruptcy is a divorce (another is large medical costs). Divorce is expensive both in legal fees and in splitting one household into two. It comes as no surprise then that a common question that divorcing parties have is whether to file for bankruptcy and if so, when they should do it.

The ideal is for the couple to discharge their debts and then file for divorce: filing together is better than filing separately. First of all, if you file together, you only have to pay the legal fees and court costs for one bankruptcy instead of both of you paying for separate bankruptcies.
When you file for dissolution of marriage, there will be no need to argue over how to split the debts. The only debts that should remain are student loans and sometimes non-dischargeable tax debts. This makes the property settlement simpler and cheaper.

This approach is only recommended, though, if you are able to get along well enough to go through the bankruptcy process together. This of course requires the couple to be able to communicate about finances, which is often a cause for divorce in the first place.

One possible drawback: if you want your lawyer to represent the two of you in a bankruptcy and you want that same lawyer to handle the divorce, the lawyer cannot do so unless it will be a an uncontested divorce or your spouse gives written informed consent to the representation. A lawyer cannot a party whose interests are hostile to a former client.

Filing during divorce can be done, but only recommended if filing jointly: If a bankruptcy case is pending involving the divorcing couple, the divorce court must be informed of the pending bankruptcy. Because of the automatic stay in bankruptcy, the court will need to get permission from the bankruptcy court to do the property division which might delay the process, but won’t stop it either. As with filing prior to divorce, this requires communication between the parties. I don’t recommend filing solely during the divorce though. If one party files and the other does not, the non-filing party may be able to get the property division offset to account for the increase in debt.

Imagine a typical American couple divorcing. Perhaps they have some investments into 401(k) or other retirement accounts. That money is community property and would normally be split evenly between the parties. Suppose also that the couple has several thousand dollars in credit card debt and medical bills. If one party files for bankruptcy and the other does not, the non-filing party could seek a deviation from the normal property settlement because they have just been saddled with 100% of the debt. That is how it works when more than one party is responsible for a debt. A married couple is jointly liable for all community debts. This means that if one party has their debts discharged, the other party is now liable, not for their half, but for all of the debt.

You cannot file jointly after divorce: Even though your debts may be the same, after divorce you cannot file a joint petition; you must file two separate petitions. This means that you will have two filing fees and two legal fees if you are (hopefully) represented by an attorney. So that is one knock against filing afterwards.

You may lose out on certain exemptions if you wait to file as well. In Arizona, there are many exemptions that are doubled for a married couple, such as the auto exemption. You may be putting some of your property at risk if you wait to file.

On the flip side, if you did not qualify for a chapter 7 under the means test while married with two incomes, you may qualify as a single person.

An ongoing chapter 13 is a totally different animal:<a the above deals with a chapter 7 bankruptcy – or a liquidation bankruptcy. These usually only take a few months to complete. A chapter 13, on the other hand, involves a payment plan over 3 to 5 years. The payment plan is based on the couple being married. This will not survive a divorce. If you are under a chapter 13 payment plan and are contemplating divorce, you will need to speak with your bankruptcy lawyer about this right away.

As always, it is best to discuss the particulars of your situation with an experienced attorney before doing anything about divorce or bankruptcy.

Help! My wages are being garnished!

Let’s face it. Most of us live paycheck to paycheck. So it can come as a real shock to receive that notice from your employer that a creditor has garnished a portion of your check. You and your family are already just making it each month with perhaps just a bit left over. A garnishment can take a much bigger chunk out of your check than you can realistically afford at this moment.

Quite often, a garnishment arises from a debt buyer lawsuit over which the debtor had no notice or had but ignored. It can also occur when a credit card company sues you for full payment, or any other type of lawsuit against you that ends up in a judgment against you. Once a judgment is filed, the plaintiff becomes the “judgment creditor” and may pursue the debt through a garnishment action.

But there is hope. A bankruptcy will not only erase all of your other debt, but it will stop that garnishment in its tracks along with all other collection actions. But before we discus this, I want to explain a little more about garnishment and what your creditors are allowed to take.

In Arizona, 75% of your wages are exempt from your creditors. This means that a garnishment can only take up to 25% of your paycheck. Now I don’t know about you, but if my wages were cut by 25%, I would be hurting big time. If bankruptcy is not an option for you (if you have already filed within the last 8 years for example), you can get the amount they garnish reduced if you qualify. If you can prove that a 25% reduction will be a hardship, you may be able to reduce that percentage down to 20% or 15% percent.

Unfortunately there are very few defenses to a garnishment. The judgment creditor must show a valid copy of the judgment and file a writ of garnishment upon your employer or your bank. You will have an opportunity to answer the garnishment, but the only viable defense is that this really isn’t your debt. Kind of hard to prove when there is already a judgment against you, no? Unless you make so little that you are “judgment proof,” the only viable way to defeat the garnishment is through bankruptcy.

If your wages have been garnished, a bankruptcy can put a stop to it immediately. Once a bankruptcy is filed, it triggers the “automatic stay” and all collection actions must cease. In fact, if your wages are garnished again after the bankruptcy is filed, your creditor must return those funds. You cannot get back the other money you have already paid before filing, however. If you are facing a significant garnishment, bankruptcy is usually the best option for you.

Beating the Tax man in Bankruptcy

Can I Beat the Taxman in Bankruptcy?

There’s an old saying that there are only two things certain in life and that is death and taxes. It’s also true that the bankruptcy laws were written by the very entity requiring those taxes, so you would think it’s impossible to beat the taxman using his own laws. There are certainly more rules and pitfalls, but in some circumstances it can be done!


1. The taxes are income taxes; this means the taxes are not payroll taxes or any other tax other than income tax.
2. You did not commit any type of fraud or willful evasion in your tax return.
3. The tax debt must be at least 3 years old; in other words, the tax return must have been originally due at least three years before filing bankruptcy.
4. You must have filed a tax return on the tax debt you wish to discharge at least two years before filing bankruptcy.
5. The income tax debt must have been assessed by the IRS at least 240 days before your bankruptcy petition, or must not have been assessed yet

Tax discharge only applies to a chapter 7 bankruptcy. Taxes are treated differently in a chapter 13. Under chapter 13, you must pay your taxes in full as a part of your payment plan.

It’s important here to remind you that a chapter 7 can discharge personal liability for back taxes. Therefore, the IRS can no longer attempt to garnish your wages or your bank account. However, it does not get rid of tax liens. If the IRS has already placed a lien on a piece of property you own, the lien will still be there when you attempt to sell it. A lien simply means that someone has an interest in a piece of property. If the IRS has a tax lien on your house, you will need to satisfy the lien before you try to sell it unless the potential buyer wants to buy your tax debt along with the property — unlikely.

Will I have to give up all my stuff?

I can tell you with 100% pure confidence that IT DEPENDS. How’s that for an answer? There is a lot of misinformation floating out there about bankruptcy, and one of those is that you will have to give up your cars and house.

First of all, it is important to know what type of bankruptcy we are talking about. A chapter 13 never requires you to give up anything. It is a “payment plan” bankruptcy that allows you to pay less of what you actually owe over a 3 to 5 year plan.

A chapter 7 is also called a “liquidation” bankruptcy. Liquidation means that any non-exempt assets will be sold by the trustee to satisfy your creditors in exchange for completely wiping out your unsecured debt. In the real world, most people who file chapter 7 do not have assets above and beyond their state’s exemptions limits. So for example, the exemption for a car in Arizona is $6000. If you own your car outright, the trustee would need the ability to sell it in the open market for more than $6000, including any transaction costs, to justify taking the car. For most people, owning their car outright usually means they have an older car not worth more than $6000. And if you have a car loan, your equity in the car is the difference between what you could realistically sell it for and the amount of the loan still outstanding. A car is a depreciating asset, meaning it looses value the longer you have it — so again, it is not likely that you will have to give up your car unless you have own a very expensive car with an equity greater than $6000.

But what if you do have such a vehicle, or other personal property like a boat or real estate other than your residence? There are no exemptions for these things. If you are in danger of losing a significant piece of property in a chapter 7, we can discuss that possibility and perhaps use a chapter 13 strategy instead. A chapter 13 is not a liquidation bankruptcy. You may keep all of your property, but instead of a total debt wipe out, a reasonable payment plan is proposed and followed. Depending on your own situation, it may be more advisable to give up a piece of property, rather than doing a 13. However, if you own property that has a significant value, such as a piece of land, or if your property has sentimental value, it would be more advisable to opt for a payment plan under chapter 13.

The only way to know the right course for you is to meet with an attorney. For a debt strategy session, please follow this link.

The Top 3 Ways Bankruptcy Can Improve Your Credit (Not Kidding)


 credit report

I hear people say all the time, “won’t bankruptcy ruin my credit for 7 years?” Well first of all, a bankruptcy stays on your credit report for 10 years. But more importantly, while a bankruptcy is certainly not good for your credit rating, it actually improves the factor that we are really concerned about and that is a willingness of a creditor to lend you money.

  1. Bankruptcy is preferable to multiple late fees


By the time most folks are thinking about bankruptcy, they already have multiple late-pays on their credit report of 30, 60, and 90 or more days late in some cases. Each one of these leaves its own bad mark on your credit report, making it less and less likely that a lender will want to loan you additional money.     Bankruptcy is one point in time and hurts you less than late after late after late.

  1. Bankruptcy wipes out old debts


If you had money to lend, would you rather lend it to someone who already had 20 thousand dollars in debt, or someone who had little or no debt?   The answer is obvious.   Personally I would rather be someone’s only creditor than one of many creditors. Once you obtain your discharge, you will be free of most or all of your debt. Anyone lending you money now becomes the priority instead of getting lost in the crowd. Many people are shocked at how quickly they start receiving credit card offers in the mail shortly after bankruptcy. I don’t recommend you sign up, but it proves the point.

  1. Creditors are safe from the fear of a bankruptcy filing for the next 8 years


The bigger your debt, the larger the threat of bankruptcy looms for potential lenders. Once you obtain your discharge, however, potential lenders are safe for at least 8 years because you cannot file for bankruptcy again until that time. So the recently bankrupt become a very good risk for creditors. This is yet one more reason that you may receive multiple credit cards offers shortly after your discharge.

Keep in mind that I am not claiming that your credit score will improve, only that lenders will be more willing to lend to you after bankruptcy. Of course, the interest rates that you are offered may not be the best. However, if your credit is the measure of the willingness of lender to lend to you, then bankruptcy can improve your credit in many cases.

Filing bankruptcy is not what ruins your credit, not paying bills on time ruins your credit. Want to rebuild your credit? Simple. Pay your bills on time.

Top 5 Real Estate Strategies in Bankruptcy

When times are tough, there is nothing more stressful than the thought of losing your home.  After all, your home contains your memories.  You may be worried about your children moving schools or whether your credit will even prevent you from renting a house in your neighborhood.  Fortunately bankruptcy law has some powerful tools to help you stay in your home either temporarily or permanently.




In most cases, even if you file a chapter 7, also known as a “liquidation bankruptcy,” you may keep paying your regular monthly mortgage payment and stay in your home after bankruptcy.  Your home will not be sold by the bankruptcy trustee unless there is more than $150,000 in equity in the property.  That is the amount of the Arizona “homestead” exemption.  You figure out equity by subtracting your loan amount from the amount you could reasonably get by selling your house.  For most people, that amount is well under $150,000, and sadly for some, it is a negative number!  So for the vast majority of Arizonans, bankruptcy will not interfere with their home at all.




Not everyone wants to keep their house, and for some people, it is more advisable to give up a house than to continue paying, especially if the home is under water or a balloon payment is due.  Many clients are facing eminent foreclosure and are afraid of getting kicked to the curb without adequate time to prepare and without enough money for rent and deposits on a new place.


A bankruptcy filing puts an immediate stop to all collection actions under the “automatic stay.”  This includes your mortgage service provider.  If your home is about to be foreclosed on, a bankruptcy will stop the foreclosure sale.  The bank or whatever entity that owns your mortgage note then has the right to petition the bankruptcy court for “relief” from the stay so as to pursue its foreclosure remedy.  But this takes time — valuable time for you to save money for your move (you don’t have to pay your mortgage payment any more), and prepare your household belongings etc. 





A variation on number 1 above, If you have the ability to get caught up with your late payments during the automatic stay, then you can keep your home.  I recommend this strategy only if you can realistically get caught up.  If you can’t do it and the mortgage company decides to foreclose anyway, then the money you paid them was wasted.  However, if you have been paying your monthly credit card charges up to this time, you can switch your budget to paying the back mortgage payments with the money you save by not paying on those cards, it might work.  Also, many mortgage companies are willing to work with people to help them get caught up.  I can help you negotiate with your lender if you choose this strategy.




When it gets too hot here in Arizona, we like to strip off our extra layers.  You may have “extra layers” encumbering your home in the form of second mortgages and home equity lines of credit (HLOC).  These are all “liens” on your home, meaning they are obligations attached to your property.  If you do, there is a strategy available for getting rid of those so you only owe on the original mortgage.


In a chapter 13 bankruptcy (this strategy is not available in chapter 7), we can get rid of those pesky second mortgages and lines of credit.  This depends on the equity in your house.  Once again, the equity is simply the difference between what the property could be sold for today and the amount of the loans.  Most of the time, you owe more to the first mortgage than you could get through sale, let alone paying the second mortgages or HLOCs.  So let’s say you have a first mortgage for $200,000, a second mortgage for $50,000, and a HLOC for $10,000.  And lets say your home would list at $190,000.  There isn’t enough equity to satisfy these secondary liens so we can magically strip those right off and viola, we are left with the original mortgage which will become a part of the chapter 13 payment plan.




OK, this one can get little complicated and there are additional costs involved that are not part of the normal bankruptcy fees listed here.  The mortgage industry has been a bit naughty over the last couple of decades, and many mortgage documents fall far short in areas such as TILA (Truth in Lending Act) and the legal requirement for proper recordation by the note holder.  Arizona is a non-judicial foreclosure state, meaning that your (supposed) mortgage lender does not have to go to court to begin a foreclosure action.  There is therefore no forum for you to argue about any of the deficiencies that might exist with your loan documents unless you sue them (with the burden of proof on you).  Within a bankruptcy, however, the issue of mortgage defects can be argued to the bankruptcy court.  These strategies are difficult in part because judges don’t like hearing them and in part because the issues are so complex.  There have been rare occasions where a homeowner has been able to keep his house free and clear of the mortgage by proving that the bank trying the foreclosure was not the actual holder of the mortgage note.  However, in most cases, what we are hoping for is a loan modification on much better terms than the ones offered by the banks.