Bankruptcy MythBusting #7

Myth:  I don’t have enough debt to file bankruptcy.
Fact:  There is no legal requirement or minimum amount of debt necessary to file for bankruptcy.  There may be more pragmatic concerns, such as whether you have enough debt to make filing bankruptcy worthwhile.  I generally try to discourage people from filing for bankruptcy with less than $6k in unsecured debt because the cost to benefit ratio becomes small, though I’ve had clients insist on filing bankruptcy over less than $4k in debt.  Usually, there is some other factor motivating bankruptcy, not just the amount of debt.  Most people have somewhere between $20k to $80 in unsecured debt.
You can have too much debt.  Chapter 13 has limitations on how much debt you can have.  If your debt exceeds those amounts, and do not qualify for a Chapter 7 Bankruptcy, you could be stuck with the much dreaded Chapter 11 bankruptcy (which is usually for corporations, but individuals sometimes file Chapter 11, too).  Fortunately, very few people have so much debt that they are faced with this scenario.
The good news is that an experienced bankruptcy attorney can look over the facts of your case and determine whether Chapter 7 or Chapter 13 is best for you before you make any commitments. Call (920) 490-6160 now to schedule a free consultation.

The importance of disclosing all debts.

Recently, I experienced a string of Chapter 13 cases that were in danger of failing within just the first few months.  It turned out that the reason in each case was the same: the debtors were paying and trying to play catch-up with their utility services (Wisconsin Public Service) and couldn’t afford to make their plan payments.
The thing is, WPS should have been included in their bankruptcy case and not paid separately from the Chapter 13 Plan.  In each case, the debtor never informed me that they were delinquent on their utility bills.  Why WPS didn’t show up on their credit reports is a different mystery, but the point remains that a debtor needs to tell their attorney about any debts they may not have shown up on a routine credit check.
I could get into a detailed discussion about WPS and when and why their debts need to be included in bankruptcy.  But I think this story illustrates a much broader issue that I find myself repeatedly having to hash out with clients.  And that’s the “I don’t want to file against so-and-so” problem.
Here’s the thing, and I can’t stress this point nearly enough.  Listing a debt on your bankruptcy schedules is NOT synonymous with having the debt discharged.  Whether a debt is discharged depends on the nature of the debt, not whether it was disclosed.
A non-dischargeable debt is what it is.  You could file bankruptcy 20 times and list your student loans on your schedules each time, and without a demonstration of hardship, those loans aren’t going away.
Similarly, someone who wishes to keep a store credit card open for future purchases does themselves no favors by omitting the creditor from their schedules.  The bankruptcy discharge is good against the world.  And the credit card debt is discharged, whether they were listed on schedules or not.

Stated another way, the Chapter 7 discharge is “good against the world,” including unscheduled creditors.  The discharge is said to be good against the world in the sense that it applies to all unscheduled debts except those that are expressly made nondischargeable by ยง 523.

And listing your home mortgage or car loan does not mean you’re going to lose your house or your car.  Most people get to pick and choose what secured debts they will reaffirm or surrender.  Listing these creditors on schedules is not an affirmation of intent.
So if a debt will be discharged whether or not it is listed on schedules, or if a debt is non-dischargeable whether or not it is listed on schedules, then why is it is so important to list creditors on schedules?
Because no matter who the creditor is – a non-dischargeable student loan, your dischargeable credit card, or your home mortgage that you intend to reaffirm – they are all legally affected by your bankruptcy case.  Your bankruptcy case automatically endows you and all of your creditors with certain rights and responsibilities.
So disclosing all debts becomes a matter of proper notice and of due process rights.  Each of your creditors is entitled to be made aware of your bankruptcy so that they can act accordingly.  If their debt is dischargeable, they may be entitled to object to your discharge for allegations of fraud.  Although your student loans may not be discharged, your lender is still required to not make collection attempts while the bankruptcy is pending.  And although you intend to reaffirm your home mortgage, the debt is technically dischargeable, so your lender needs to know to execute a reaffirmation agreement.
If your case is an “Asset Chapter 7” (non-exempt property available to the trustee to be sold for the benefit of unsecured creditors) or a Chapter 13 (which includes monthly plan payments to be redistributed among creditors), then all of your creditors have a right to know about the bankruptcy so they can file claims.
Sure, there are other reasons to list all creditors.  (1)  So you get the full force and benefit of your automatic stay and discharge injunction protections.  (2)  Because your debt to income ratio, who your creditors are, and how much your creditors are owed (regardless of class) may very well have a material impact on your case and how it is administered.  (3)  Because keeping unsecured debts “out of bankruptcy” usually means you’re still making payments to them, which would constitute all sorts of preference payment issues.
But mostly, it’s a due process issue.  Each and every one of your creditors, regardless of your intent to pay and regardless of dischargeability, will be affected by your bankruptcy case and have a right to know that you filed for bankruptcy.

Bankruptcy & Family Law Intersects: Gay & Lesbian Debtor-Couples

As you know, two debtors who are married to each other may file a joint bankruptcy petition. As Wisconsin does not currently recognize gay marriage, two such spouses are unable to file a joint petition. So today, we’re going to discuss the practical implications of this, and what you need to know.
Under current Wisconsin law, a gay couple living together is basically the equivalent of being roommates for bankruptcy income purposes. Your partner’s income is not counted on the Means Test, nor do they contribute to the household size. This actually ends up being advantageous, because the applicable median income level does not increase dollar for dollar with a typical person’s salary. Meaning that a married couple who must report income of both spouses is more likely to be above median than a single person (although having child dependents can quickly take care of that). For example, take two individuals each making $30k per year. Any one individual is approximately $12k below median. But if they are married, their combined income is about $3k above median.
However, that isn’t to say that your partner’s (or significant other’s) income is completely excluded from the equation. If any portion of the partner’s income is used to contribute to household expenses, then that potion is reportable on the Means Test, as well as Schedule I, the schedule for budgeting income.
Wisconsin being a community property state, each married spouse has a whole, undivided interest in each marital asset. What that means is that instead of husband and wife each having a 50% interest in a piece of property, the husband and wife are considered a single legal entity with a 100% interest in that piece of property. Since gay couples cannot be legally married in this state, they cannot have community property. They can have individual property or they can have joint property. Joint property being where two people have a 50% interest in an asset. Individual property is only a problem for a gay couple if they own a quantity of assets similar to those of a married couple, but it’s all titled in one person’s name. This is the same problem that we frequently encounter with non-filing spouses. I’ll grossly over-simplify this example to illustrate my point. Let’s say there’s a flat amount of property exemptions of $25k. Your average person has $20k in assets. Two average people have $40k in assets. If only one person files (whether we’re talking about a single person in a gay couple or one spouse of a married couple) they cannot double their exemptions. So if all the property is titled in one person’s name, then there’s a chance that the exemption limits will be used up. However, if roughly half of the property owned by the couple is owned by each partner, then it is less likely to be a problem. In the case of jointly-owned property, this is where gay couples actually get an advantage over a married couple with a non-filing spouse. Again, with the married couple, the ownership interest is whole and undivided, so if one spouse opts out of filing, the filing spouse only gets half of the exemptions, but full ownership. If assets are titled jointly between two domestic partners, on the other hand, then it doesn’t matter that the one partner filing is only entitled to half the exemptions, because his interest in those assets is only half the value. Of course, be careful not to transfer an individual ownership interest into a joint ownership interest just prior to filing, as this could be considered a fraudulent conveyance.
Debts are the area where there are usually disadvantages for gay couples. Naturally, if each partner owes individual debts, each person must file a separate bankruptcy to discharge those debt obligations. There are no community debts, just as there are no community assets for LGBT couples, so there can be no benefit from a phantom discharge if only one partner files. Similarly, if two partners apply for a joint credit card, or co-sign on each other’s loans, if only one partner files, then the other partner – the joint debtor – is still fully liable for those joint debts. The only way to protect a non-filing partner from collections is the same way we would protect any other joint debtor / co-signer, which is to file a Chapter 13. Chapter 13 imposes a co-debtor stay during the 3-5 year term of the repayment plan. However, at the end, any joint debts not paid in full would once again become the responsibility of the non-filing partner.Holbus Law Office, LLC is a safe and welcoming environment for LGBT debtors.