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The Most Difficult Part of Bankruptcy Has Nothing to Do With Money
In many cases, filing for bankruptcy is your best financial option. However, that doesn’t mean your head, heart and wallet are in sync. Bankruptcy can be difficult to accept emotionally. When you’re facing bankruptcy, it is normal to be overwhelmed by feelings of loss and frustration. There are a few steps you can take to help relieve the emotional stress that accompanies your financial situation.
- Think Proactively
It can be very difficult not to focus on the negative aspects of declaring bankruptcy. You may be losing a business you’ve put an enormous amount of time and money into building or a home you’ve raised your family in. At the very least, you are admitting that, whether it was your fault or not, you ended up under water. The best way to tear your mind away from these negative feelings is to stay focused. Make a detailed calendar that includes the steps you need to take toward having your debts discharged, and focus on the process.
- Remember the Positives
The process of filing for bankruptcy is complex and often frustrating. However, take some solace in knowing the Automatic Stay granted by filing for bankruptcy protection will get the harassing debt collectors off your back. Know that when your filing process is complete, you will have a clean slate and be back on the road to good financial health.
- Have a Great Team
The most important thing you can do to avoid an unnecessarily painful emotional experience with bankruptcy is to surround yourself with people who want to help. This means being open with family members, and accepting their support.
In addition, choosing an experienced bankruptcy lawyer who has been through this before with other families can really be helpful legally and emotionally. No matter how you feel about bankruptcy, your attorney has seen the benefits of getting through the process. It’s good to have a knowledgeable advisor on your team.
Student Loans
Please Note:
The law changes almost daily. Programs listed here may be eliminated or changed. This is only intended to suggest there may be programs.
The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship. It is also important to note that the information contained in this article may be outdated.
Please Note:
This area is intended for the exclusive use of attorneys. You know the drill – do your own due diligence. We make no representations as to the accuracy or current status of any information cited herein.
If you are NOT an attorney it is important to educate yourself, but this is not the place to do it. You must obtain legal advice from an experienced attorney familiar with your unique situation. Fixing unintentional errors will cost far more than doing it right the first time; if it can be fixed at all.
The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship.
MISCELLANEOUS BANKRUPTCY ISSUES
IMPORTANT: This firm makes NO representations as to the accuracy or current status of any law, case, article or publication cited herein or linked to.
Warning – some of these references are pre-BAPCPA.
JURISDICTION OF BANKRUPTCY COURT TO RULE ON STATE LAW ISSUES
Not all bankruptcy “core” proceedings are created equal: a limitation on state law lender liability claims in bankruptcy court after Stern v. Marshall Katten Muchin Rosenman LLP
The scenario has become all too familiar in recent years: a borrower defaults on a loan and, when the lender pursues the loan collateral through foreclosure or other proceedings, the borrower files for bankruptcy protection.
BANKRUPTCY COURT ENFORCEMENT POWERS
In re Kenny G. Enterprises 16-55007 (9th Cir 7/26/2017) Kenneth Gharib refused to comply with Bankruptcy Court order to turn over $1,420,000 belonging to a chapter 7 estate. The judge imposed sanctions for the contempt: civil contempt sanctions of $1,420,000, $1,000 a day until he complied, plus incarceration until he complied. The District Court of California affirmed the order, except the $1,000 a day. The 9th Circuit reverses on the issue of daily sanctions, finding that such daily sanction is permitted if it is “properly coercive” to comply with the turnover order, but not if it becomes punitive.
In the face of a § 542 violation the bankruptcy court may invoke its contempt power under § 105, which allows the court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C . § 105(a) Such sanctions include incarceration for more than two years
EMPLOYMENT AND BANKRUPTCY
Private employer may refuse to hire person on account of such person’s having filed bankruptcy. Myers v. Toojay’s Mgmt. Corp. (11th Cir., 2011) (5/2011) Debtor applied for employment for a managerial position with a private company. Employer denied employment primarily or solely on the basis that the applicant had filed Chapter 7. The debtor filed bankruptcy and received a discharge, and a few months later applied for the job.As part of the application process the applicant was provided with certain forms, included an acknowledgment of receipt of a sexual harassment manual; a non-solicitation and confidentiality agreement; and an authorization and release of personal information for a background check. The background check release permitted the employer to “conduct a comprehensive review” including a review of Myers’ “credit history and reports.”CONDITION OF EMPLOYMENT: GOOD CREDIT The employer had the applicant spend several days getting familiar with the activities of the business, and scheduled him to begin work on August 18 without informing him that his employment would be conditioned on a clean credit history.Subsequently the applicant was informed the offer of employment was withdrawn, and ” … told him that the only reason he was not hired was that he had filed for bankruptcy, and it was the employer’s policy not to hire people who had done that.”Debtor claims violation of § 525 On September 2, 2008, Myers filed a lawsuit against the employer. The complaint alleged, among other things, that the defendant had discriminated against him because of his bankruptcy, in violation of 11 U.S.C. § 525(b), by refusing to hire him and, alternatively, by terminating him from the job after it had hired him.Difference in wording between 525(a) and 525(b) In ruling on the case, the court pointed out a significant difference in the wording of the two subsections of 11 U.S.C. § 525, which ostensibly protects debtors from discrimination in employment on account of filing bankruptcy.”Section 525(a) applies to governmental employers, and explicitly prohibits such employers from denying employment; section 525(b), however, does not contain that language, and, strictly read, addresses only terminating employees, but not refusing to hire.””The conspicuous difference between the two subsections is that § 525(a), the one applying to government employers, explicitly forbids them from either denying or terminating employment because of a bankruptcy, while § 525(b), the one applying to private employers, forbids them from terminating employment because of bankruptcy but says nothing about denying employment because of it.””Our holding that § 525(b) does not apply to refusals to hire is in accord with the holdings of the only two other circuits that have decided the issue. See In re Burnett, _F.3d_, No. 10-20250, 2011 WL 754152, at *2 (5th Cir. Mar. 4, 2011) (holding 11 U.S.C. § 525(b) does not prohibit private employers from denying employment to persons because of their status as a bankruptcy debtor); Rea v. Federated Investors, 627 F.3d 937, 940-41 (3d Cir. 2010).
CROSS-COLLATERALIZED and ANTICIPATORY BREACH
Credit unions: Citizens Bank of Marilyn, V. Strumpf, 516 U.S. 16, 116 S. Ct. 286 (1995) where the Supremes recognized and confirmed the right of set-off at the time of filing the bankruptcy. I don’t even think a Chapter 7 Trustee can get turnover as a preference or for that matter, the Debtor in a Chapter 13.
BANK ACCOUNTS OFFSET AND BANKRUPTCY
You have a credit card with your credit union. You filed for bankruptcy and the credit union froze the account. They say you can get those funds if you reaffirm the debt to the Credit Union.
SCOTUS case on point, Citizens Bank of Md. v. Strumpf, 516 US 16 (1995) Section 542(b) of the Code, which concerns turnover of property to the estate, requires a bankrupt’s debtors to “pay” to the trustee (or on his order) any “debt that is property of the estate and that is matured, payable on demand, or payable on order . . . except to the extent that such debt may be offset under section 553 of this title against a claim against the debtor. ” 11 U. S. C. § 542(b)
Set off and banks:
47-9104. Control of deposit account
A. A secured party has control of a deposit account if:
1. The secured party is the bank with which the deposit account is maintained
2. The debtor, secured party and bank have agreed in an authenticated record that the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor; or
3. The secured party becomes the bank’s customer with respect to the deposit account.
B. A secured party that has satisfied subsection A has control, even if the debtor retains the right to direct the disposition of funds from the deposit account.
47-9314. Perfection by control
A. A security interest in investment property, deposit accounts, letter-of-credit rights, electronic chattel paper or electronic documents may be perfected by control of the collateral under section 47-7106, 47-9104, 47-9105, 47-9106 or 47-9107.
B. A security interest in deposit accounts, electronic chattel paper, letter-of-credit rights or electronic documents is perfected by control under section 47-7106, 47-9104, 47-9105 or 47-9107 when the secured party obtains control and remains perfected by control only while the secured party retains control.
Regulation Z says the security interest must be consensual to setoff a deposit account for a credit card debt. The reg preempts the state law on this issue.
12 CFR 12.226
(d) Offsets by card issuer prohibited. (1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder’s indebtedness arising from a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.
(2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: Obtain or enforce a consensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.
(3) This paragraph does not prohibit a plan, if authorized in writing by the cardholder, under which the card issuer may periodically deduct all or part of the cardholder’s credit card debt from a deposit account held with the card issuer (subject to the limitations in §226.13(d)(1)).
IMPORTANT NOTE: All financial institutions have a policy of freezing accounts if debtor owes them money. Wells Fargo and most credit unions will freeze the debtor’s bank account.
SOCIAL SECURITY NUMBER OR ITIN NUMBER
11 USC 109 states that a person who “resides or has a domicile, place of business, or property in the United States, or a municipality, may be a debtor (petitioner, bankruptcy filer, person who wants to file bankruptcy) under this title.” (explanation added). Neither this section nor the bankruptcy code require a debtor to have a social security number to file bankruptcy. In order to accommodate this, an individual without a social security number should complete, and sign, a document titled a Statement of Social Security Number. Even though the document is titled a “Statement of Social Security Number,” it allows for a filer to provide for either a social security number, an Individual Taxpayer Identification Number (ITIN), or state that the filer does not have either a ITIN or social security number.
BOUNCED CHECKS
Imperial Merchant Services, Inc. v. Hunt, No. S163577 Supreme Court of California, August 10, 2009 Issue: may a debt collector recovering on a dishonored check may recover both a service charge under section 1719 and prejudgment interest under section 3287. “We conclude that the statutory damages prescribed in section 1719 are exclusive in the sense that a debt collector who recovers a service charge pursuant to section 1719 may not also recover prejudgment interest under section 3287” (NOTE: California law)
TOLLING OF STATUTE OF LIMITATIONS
Severo vs IRS (No. 08-70817 US Tax Court, CA 11-09) [2] The IRS generally has ten years from the assessment of a tax to collect the outstanding liability. 26 U.S.C. § 6502(a)(1). However, the Internal Revenue Code contains several provisions tolling the ten-year statute of limitations. Of greatest relevance to this case, Section 6503(h)(2) provides: The running of the period of limitations provided in section 6501 or 6502 on the making of assessments or collection shall, in a case under title 11 of the United States Code, be suspended for the period during which the Secretary is prohibited by reason of such case from making the assessment or from collecting and— (2) for collection, 6 months thereafter. 26 U.S.C. § 6503(h)(2). Under this provision, the period of limitations for IRS collection is tolled for the period of the bankruptcy court’s automatic stay, during which the Bankruptcy Code prevents the IRS from collecting a tax liability, plus an additional six months.[3] Section 362(a) of the Bankruptcy Code provides an automatic stay on eight types of actions, including “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.” 11 U.S.C. § 362(a)(6). Section 362(c) establishes the duration of this automatic stay in bankruptcy cases: (1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate; (2) the stay of any other act under subsection (a) of this section continues until the earliest of—
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied. 11 U.S.C. § 362(c). An act against the property of the bankruptcy estate is stayed until it is no longer part of the estate, but an act against the debtor—which is not an “act against property of the estate”—dissolves immediately upon the bankruptcy discharge order. Under Section 362(c)(2), the automatic stay will generally not end until the Bankruptcy Court issues its discharge order, and the period for collection is tolled for another six months thereafter. See Richmond, 172 F.3d at 1102.
Please Note:
This area is intended for the exclusive use of attorneys. You know the drill – do your own due diligence. We make no representations as to the accuracy or current status of any information cited herein.
If you are NOT an attorney it is important to educate yourself, but this is not the place to do it. You must obtain legal advice from an experienced attorney familiar with your unique situation. Fixing unintentional errors will cost far more than doing it right the first time; if it can be fixed at all.
The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship.
DIVORCE AND BANKRUPTCY (ARIZONA SPECIFIC)
IMPORTANT: This firm makes NO representations as to the accuracy or current status of any law, case, article or publication cited herein or linked to.
Warning – some of these references are pre-BAPCPA.
SUGGESTED LANGUAGE FOR DIVORCE DECREE
Language for divorce decree: Wife (Husband) intends to file bankruptcy. Therefore no debts are allocated to wife and therefore wife is not ordered to hold harmless husband (wife) regarding any debt.
DISCHARGEABILITY OF PROPERTY SETTLEMENT AND DEFALCATION IN A MARRIAGE
Heilman v. Heilman (In re Heilman) BAP No. EW-09-1150-HMoPa, 430 B.R. 213; 2010 Bankr. LEXIS 1386 (9th Cir BAP, April 26, 2010) The bankruptcy appellate panel held, however, that the community debt was a pre-petition debt which was discharged in the debtor’s bankruptcy case, and the hold-harmless provision in the divorce decree did not revive the discharged debt. On the date of the debtor’s bankruptcy petition the spouse held a contingent claim against the debtor for contribution on the community loan debt, and the debtor’s discharge extinguished the debtor’s liability on the contingent liability. Further, the hold-harmless provision was based on the debt which was discharged and thus did not constitute a reaffirmation of the debt, and the provision of the divorce decree requiring the debtor to pay the debt was void and unenforceable.
Mele vs Mele, BAP No. WW-13-1173-DTaKu, Bk. No. 11-24015-MLB, Adv. No. 12-01271-MLB (9th Cir.11/5/2013) “While the bankruptcy court’s decision to except a portion of the Property Settlement Judgment from John’s chapter 13 discharge pursuant to § 523(a)(4) as a defalcation of his fiduciary duties to the marital community between him and Kimberly may be defensible as a matter of policy, it appears “to override the balance Congress struck in crafting the appropriate discharge exceptions for Chapter 7 and Chapter 13 debtors.” Davenport, 495 U.S. at 563.”
“Based on the foregoing analysis and discussion of § 523(a)(4) and relevant authorities, we conclude that the bankruptcy court erred as a matter of law in determining that Washington common law established the marital relationship as in the nature of an express or technical trust, imposing fiduciary duties on spouses to manage community property for the benefit of the marital community during marriage, for purposes of establishing the elements of a § 523(a)(4) claim. Accordingly, we REVERSE.”
DEBT INCURRED IN COURSE OR CONNECTION TO DIVORCE
Adam v. Dobin (In re Adam; 9TH CIR.) BAP CC20-14-1416-PaKiTa (4/6/15) Affirming the bankruptcy court, the Bankruptcy Appellate Panel of the Ninth Circuit held that the bankruptcy court did not err in granting summary judgment that the creditor’s claim against the debtor was excepted from discharge under Sect. 523(a)(15). The BAP reasoned that the trend in recent case law was to construe Sect. 523(a)(15) expansively to cover a broader array of claims related to domestic relations within the discharge exception. In sum, the trend in recent case law is to construe § 523(a)(15) expansively to cover a broader array of claims related to domestic relations within the discharge exception. See, e.g., In re Wise, 2012 WL 5399075, at *6 (Bankr. E.D. Tex. Nov. 5, 2012) (§ 523(a)(15) “rendered as non-dischargeable virtually all obligations arising between spouses as a result of a divorce decree.”); Quarterman v. Quarterman (In re Quarterman), 2012 Bankr. LEXIS 4924, at * 9-10 (Bankr. D. Ariz. October 17,
2012) (“The Section is not limited to simply divorce decree judgments alone but excepts any debt incurred by the debtor in the course of divorce or any debt in connection with a divorce decree.”).
In re Ginzl, (Bkrtcy.M.D.Fla.) July 6, 2010: Discharge – Obligations imposed by marital settlement agreement were nondischargeable. Obligations which a Chapter 7 debtor incurred prepetition in connection with his divorce, pursuant to the terms of a marital settlement agreement signed by the parties and incorporated into a final judgment of divorce, consisting of the debtor’s obligation to his ex-wife for permanent periodic alimony, for a lump sum payment from anticipated proceeds of the sale of marital property, for the assumption and payment of mortgages and homeowners’ association dues, for the payment of a deficiency on a joint income tax return, and for payment of reasonable attorney fees that the ex-wife incurred in enforcing his obligations under the marital settlement agreement, were nondischargeable, as domestic support obligations or obligation incurred in connection with his divorce that were not support. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) eliminated the distinction between domestic support obligations and other obligations arising from divorce.
WHAT IS AND IS NOT DISCHARGEABLE IN DIVORCE?
Child support, alimony, property settlement: Sections 523(a)(15) and 1328(a) or (b): What is and is not dischargeable? There are two issues involved. The first is whether the divorce decree provision can be considered “in the nature of” alimony or child support. That includes actually-specified alimony and child support along with anything that operates as a substitute for or supplement to alimony or child support. If the obligation fits that category, it would be considered non-dischargeable. Conversely, if the provision operates as a division of property or debt, it is generally not considered alimony/support, and it could be dischargeable under the right circumstances. There are situations where a division of debt is so one-sided that the party that benefits could be considered to receive alimony/support, e.g. where a custodial parent is not working. In that case, the relief from paying debts allows that party to free up resources to support the children, i.e., operating in the nature of alimony/child support. First, look at the decree. If it addresses dividing debts and assets in a completely separate section from the provision on the award of alimony/support, it is more likely, though not necessarily certain, to be considered division of debt or property which is potentially dischargeable. It’s really a case-by-case situation.
The second issue is what type of bankruptcy is filed? If it is a Chapter 7, then even a division of property or debt obligation to hold the ex- harmless would not be discharged because of Section 523(a)(15). If the debtor files Chapter 13 and gets a general discharge under 1328(a), then an obligation to divide property or debt (that is not “in the nature of” alimony/support) would be dischargeable because 523(a)(15) doesn’t apply to a 1328(a) general discharge. However, it does still apply to a 1328(b) hardship discharge. Thanks to Darrell Ihns.
CASE STUDIES ON DSO
In re Pardee, (Bkrtcy.N.D.Okla.) July 22, 2010: Bankruptcy Estate – Funds that were subject to constructive trust could not be claimed as exempt by debtor with respect to trust beneficiary. Funds which were being held in a Chapter 7 debtor’s individual retirement account (IRA), but which were subject to a constructive trust imposed by a state-court order in favor of the former wife of the debtor’s deceased husband, were not bankruptcy estate property. Thus, the funds could not be claimed as exempt by the debtor with respect to the former wife’s interest in the fund.
ARIZONA STATUTE RE MANAGEMENT AND CONTROL
25-214. Management and control
A. Each spouse has the sole management, control and disposition rights of each spouse’s separate property.
B. The spouses have equal management, control and disposition rights over their community property and have equal power to bind the community.
C. Either spouse separately may acquire, manage, control or dispose of community property or bind the community, except that joinder of both spouses is required in any of the following cases:
1. Any transaction for the acquisition, disposition or encumbrance of an interest in real property other than an unpatented mining claim or a lease of less than one year.
2. Any transaction of guaranty, indemnity or suretyship.
3. To bind the community, irrespective of any person’s intent with respect to that binder, after service of a petition for dissolution of marriage, legal separation or annulment if the petition results in a decree of dissolution of marriage, legal separation or annulment.
25-215. Liability of community property and separate property for community and separate debts
A. The separate property of a spouse shall not be liable for the separate debts or obligations of the other spouse, absent agreement of the property owner to the contrary.
B. The community property is liable for the premarital separate debts or other liabilities of a spouse, incurred after September 1, 1973 but only to the extent of the value of that spouse’s contribution to the community property which would have been such spouse’s separate property if single.
C. The community property is liable for a spouse’s debts incurred outside of this state during the marriage which would have been community debts if incurred in this state.
D. Except as prohibited in section 25-214, either spouse may contract debts and otherwise act for the benefit of the community. In an action on such a debt or obligation the spouses shall be sued jointly and the debt or obligation shall be satisfied: first, from the community property, and second, from the separate property of the spouse contracting the debt or obligation.
FILING FOR ONE SPOUSE ONLY AND COMMUNITY DISCHARGE
Filing bankruptcy for one spouse and not the other: Discharge of the marital community and discharge of the non-filing spouse assuming that they are both married at the time of incurring of the debt and the filing the petition.
Example one: A Debtor incurs debt as a separate and community obligation. If Debtor files bankruptcy and the non-debtor is not included, the Discharge will discharge the obligation for the Debtor and the marital community; because the non-debtor did not incur the debt, there is no obligation for non-debtor and his separate property.
Example two: If the Non-Debtor incurs the debt, the community is obliged as is the Non-Debtor. Debtor files a Bankruptcy, the 524 Community Discharge discharges the community obligation. Non-Debtor’s separate obligation is not discharged. However, the Creditor can pursue only the non-debtor’s separate property. The non-debtor’s contribution to the community is not subject to collection because that portion is only subject to collection if the debt is from prior to the marriage under ARS 25-215 (B). In general, see ARS 25-215.
Warning: If the event that the divorce happens, the debts are no longer community debts but joint debts and the 524 Community Discharge is inapplicable. See Frazier v. Goldberg (Ariz. Ct App)
Subsection (a) of 11 U.S.C. §524 addresses the split discharge, when only one spouse attains a discharge in bankruptcy, in community property states. The legislative history of this section says that “if community property was in the [bankruptcy] estate and community claims were discharged, the discharge is effective against the community creditors of the non-debtor spouse as well as of the debtor spouse. House Report No. 95-595, 95th Cong., 1st Sess. 365-6 (1977), Senate Report No. 95-989, 95th Cong., 2d Sess. 80 (1978). § 524(a)(3) treats the effect on the non-debtor spouse of a discharge of a debtor in a community property state when the non-debtor spouse is liable on the community claim, but has not filed a bankruptcy petition. That is, if one spouse in a community property state has commenced a bankruptcy case where, as here, no claim is excepted from the debtor’s discharge and is not otherwise found to be nondischargeable, and if the non-debtor spouse would not have had a claim excepted from her discharge in a hypothetical case commenced on the same day as the commencement of the debtor’s case, then the creditors of either spouse holding community claims on the date of bankruptcy are thereafter barred from asserting claims against after acquired community property. It was the duty of the scheduled creditors in the Braden Jay Karber bankruptcy proceedings to object to the hypothetical discharge of Valerie Karber, as the non-debtor spouse, within the same time limits as their objections to the discharge of Braden Jay Karber. 11 U.S.C. § 524(b). No such objections were filed and thus all community creditors before the Court in that case are now barred from seeking to collect their deficiencies from the after acquired community property of either Braden Jay Karber or Valerie Karber. In re Karber 25 B.R. 9, 12 (Bkrtcy.Tex.,1982); See also In re Dyson 277 B.R. 84 (Bkrtcy.M.D.La.,2002) – note not 9th Circuit decisions.
Community Discharge:
Subsection (a) of 11 U.S.C. §524 addresses the split discharge, when only one spouse attains a discharge in bankruptcy, in community property states. The legislative history of this section says that “if community property was in the [bankruptcy] estate and community claims were discharged, the discharge is effective against the community creditors of the nondebtor spouse as well as of the debtor spouse. House Report No. 95-595, 95th Cong., 1st Sess. 365-6 (1977), Senate Report No. 95-989, 95th Cong., 2d Sess. 80 (1978). § 524(a)(3) treats the effect on the nondebtor spouse of a discharge of a debtor in a community property state when the nondebtor spouse is liable on the community claim, but has not filed a bankruptcy petition. That is, if one spouse in a community property state has commenced a bankruptcy case where, as here, no claim is excepted from the debtor’s discharge and is not otherwise found to be nondischargeable, and if the nondebtor spouse would not have had a claim excepted from her discharge in a hypothetical case commenced on the same day as the commencement of the debtor’s case, then the creditors of either spouse holding community claims on the date of bankruptcy are thereafter barred from asserting claims against after acquired community property. It was the duty of the scheduled creditors in the Braden Jay Karber bankruptcy proceedings to object to the hypothetical discharge of Valerie Karber, as the nondebtor spouse, within the same time limits as their objections to the discharge of Braden Jay Karber. 11 U.S.C. § 524(b). No such objections were filed and thus all community creditors before the Court in that case are now barred from seeking to collect their deficiencies from the after acquired community property of either Braden Jay Karber or Valerie Karber. In re Karber 25 B.R. 9, 12 (Bkrtcy.Tex.,1982) See also In re Dyson 277 B.R. 84 (Bkrtcy.M.D.La.,2002)
VERY IMPORTANT: The community discharge terminates upon divorce, among other reasons. The marital community continues as long as the husband and wife remain married, neither dies, and they live in a community property state. In re Kimmel, 378 B.R. 630 (9th Cir. BAP 2007); Burman v. Homan (In re Homan), 112 B.R. 356, 360 (9th Cir. BAP 1989). Under Arizona law, the marital community ends upon divorce and the community debts become joint debts – Community Guardian Bank v. Hamlin, 182 Ariz. 627, 898 P.2d 1005 (App. 1995)(This case did not involve bankruptcy.)
As commentators have stated: …the Devil himself could effectively receive a discharge in bankruptcy if he were married to Snow White. If [the Devil] does not treat her better than his creditors, [Snow White] will, by divorcing him, deny his discharge. In re Kimmel, 378 B.R. 630 (9th Cir. BAP 2007)
BIRT VS BIRT - DIVORCE AND BANKRUPTCY
Birt vs Birt, 1 CA-CV 03-0258 (Az Ct App Div 1, 8/12/04) Appellant Judith M. Birt (“Wife”) appeals from the trial court’s denial of her motion to set aside the decree of dissolution of her marriage to Appellee John Mark Birt (“Husband”). We hold that when a party to a dissolution action files a petition in bankruptcy shortly after entry of the decree to avoid the decree’s effect on allocation of community debts and such discharge may significantly affect the non-discharged spouse’s qualification for spousal maintenance, child support and the equitable division of community property, the trial court should vacate those portions of the decree pursuant to Arizona Rule of Civil Procedure 60(c)(6)(“Rule 60(c)(6)”) so it can provide relief to the non-discharged spouse. Based on the record presented here, the superior court erred when it denied Wife’s motion. We reverse that order and remand for further proceedings consistent with this decision.
PROPERTY DIVIDED PURSUANT TO DIVORCE AND FRAUDULENT TRANSFER ISSUE
In re Beverly , 374 B.R. 221 (9th Cir.BAP 2007) affirmed in part, dismissed in part by Inre Beverly, 551 F.3d 1092 (9th Cir. 2008). BAP reversed the Bankruptcy Court by finding that Debtor and his former wife committed fraudulent transfers. Their divorce decree awarded the debt to the future Bankrupt while the former wife got all of the non-exempt property. The non-exempt property would have been enough to satisfy all of the debt. Contrast with In re Bledsoe,569 F. 3d 1106 (9thCir 2009) where the Court of Appeals found that the mere allegation that the property settlement of divorce decree did fairly divide property was insufficient under §548 without proof of actual fraud.
Please Note:
This area is intended for the exclusive use of attorneys. You know the drill – do your own due diligence. We make no representations as to the accuracy or current status of any information cited herein.
If you are NOT an attorney it is important to educate yourself, but this is not the place to do it. You must obtain legal advice from an experienced attorney familiar with your unique situation. Fixing unintentional errors will cost far more than doing it right the first time; if it can be fixed at all.
The information in this web site is not intended to constitute legal advice or to create an attorney-client relationship.
WHO CAN BE A DEBTOR? SECTION 109
IMPORTANT: This firm makes NO representations as to the accuracy or current status of any law, case, article or publication cited herein or linked to.
Warning – some of these references are pre-BAPCPA.
EXEMPTIONS - 730 DAY REQUIREMENT
In re Jewell 347 B.R. 120 (Bkrtcy.W.D.N.Y. 2006) JOHN C. NINFO, II, Bankruptcy Judge DEBTOR WHO WAS NOT DOMICILED IN STATE OF FILING FOR PRECEDING 730 DAYS AND IS NOT ELIGIBLE FOR EXEMPTIONS OF STATE OF PREVIOUS RESIDENCE MAY CLAIM THE FEDERAL EXEMPTIONS
Debtor moved from Colorado to New York less than 730 days prior to filing chapter 7 in New York, thus debtor was not eligible for N.Y. exemptions. Debtor claimed Colorado exemptions. Colorado was an “opt-out” state and its exemptions under Colorado law were available only to debtors who resided in Colorado at the time the bankruptcy was filed. The court ruled that N.Y. exemptions were not available due to the 730-day rule, and the Colorado exemptions were not available due to the Colorado exemption statute, but that the language of § 522(b)(3) permitting debtors in those circumstances to elect the Federal exemptions.
DEBT LIMITS
In re Hernandez, 9th Cir BAP 4/17/117 Debtor filed chapter 7 – listing both first and second mortgages on her residence. Then filed chapter 13 in order to lien strip the second. She listed the second in Schedule D as “0” and in Schedule F for the full debt. Creditor, Asset Management Holdings objected to confirmation for lack of good faith and moved to dismiss the chapter 13 case on eligibility grounds (over the secured debt limit). “The bankruptcy court ruled that Debtor’s debts did not place her over the eligibility limits because the debt to AMH did not need to be included in the eligibility calculation. The court found that the debt should not be treated as secured because the lien was avoidable under § 506(a), nor should it be treated as unsecured because Debtor’s personal liability on the debt had been discharged in her prior chapter 7 case. The bankruptcy court also found that the plan was filed in good faith. Accordingly, the court denied the motion to dismiss and confirmed the plan, and AMH appealed. We AFFIRM.”
180 DAY VIOLATION
In re Umali (10/03/03 – No. 02-15010/16379) (9th Cir) A bankruptcy petition filed in violation of a court-imposed 180-day bar is properly excluded from the automatic stay provisions of the Bankruptcy Code, even though the Court later modified the Order removing the 180-day bar. http://caselaw.lp.findlaw.com/data2/circs/9th/0215010p.pdf
PRE-BAPCPA
FRAUD CLAIMS AND COLLATERAL ESTOPPEL
Bank of China v. Huang (01/14/02 – No. 00-57056) (9th Cir. Ct App) Settlement agreement where party agreed not to declare bankruptcy does not have collateral estoppel effect on a later bankruptcy petition for fraud claims where fraud claims were not incorporated into the original settlement agreement. http://caselaw.lp.findlaw.com/data2/circs/9th/0057056p.pdf
PRE-BAPCPA
FILING CHAPTER 13 WHILE CHAPTER 7 IS OPEN
Can the Debtor file a new 13 while his 7 is open? In re Keach, 243 B.R. 851 (Bankr. 1st Cir. 2000); In re Turner, 207 B.R. 373 (Bankr. 2nd Cir. 1997); In re Strohscher, 278 B.R. 432 (Bankr. N.D. Ohio 2002). In re Strohscher (Bankr. N.D. Ohio) (6th Cir) Rule 1015 Debtor allowed to maintain Chapter 13 case filed prior to closing of same debtor’s Chapter 7 case.
WARNING: PRE-BAPCPA
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