If I file for bankruptcy, how will it affect my spouse?

Hopefully, it won’t affect your spouse at all. Your bankruptcy case is filed under your name and your social security number and only affects your credit. However, there are a lot of caveats to this.

That’s why you really, really need to talk to an attorney and disclose everything before you decide whether or not to file.

Income — Even though you’re the only one filing bankruptcy, we still need to look at household income. Your spouse’s income may push you over the brink of a simple chapter 7 case into a more complicated chapter 13. And yes, you will have to provide at least a couple of your spouse’s paystubs, or your case will eventually be dismissed.

Credit — Your bankruptcy only affects your credit. If any kind of “bankruptcy” notation shows up on your husband or wife’s credit, they need to dispute that immediately.

Prior filings — If your spouse has a prior bk, this does not affect your case (unless you filed that prior case together).

Buying a home — If you have filed bankruptcy, you will have to wait 2 years from date of discharge to buy a home under an FHA loan (in a chapter 7) or you have to show at least 1 year of consistent chapter 13 plan payments before you can get a mortgage. However, if your spouse is trying to buy a home on their own, then your bankruptcy does not affect their qualification at all (unless they’re trying to put you on the credit application).

Court — You’re the only one who goes to court. You filed bankruptcy, not your spouse.

Collections — Just because you’ve filed bankruptcy doesn’t mean that your spouse is off the hook for joint debts. If his or her name is on the debt, then those creditors will eventually sue your spouse. Your bankruptcy didn’t wipe out the debt for your spouse.

Assets — This is a big one, and it can definitely affect your spouse.

House or car — If you own a home or car together with too much equity, there is a chance that a bk trustee will want to sell off that asset and pay creditors, even if your spouse shares the title with you.

Transfer of assets — If you have transferred assets to your spouse to “hide” them from the bk trustee, the bk trustee can avoid that transfer and put them back in your name.

Bank accounts — There’s a pretty fair argument that your spouse’s bank accounts may be joint marital assets, and the bk trustee will want to look into those, and maybe even take them.

Tax refunds — The bk trustee can even take your joint tax returns, even if your spouse didn’t file. There are complicated formulas on how much the trustee can take, but it can happen.

Retirement — Retirement accounts (like 401ks and IRAs) are generally safe in bankruptcy. Your spouse’s retirement will not be touched unless you’ve done something really funky (like transferring cash to your spouse before filing bk, and then he puts it in his 401k to try to protect it).

Inheritance — Your spouse is probably safe. If her parent’s die and leave her the home, that home is only in your spouse’s name, and it will not be affected by your bk. But this one is pretty fact specific.

Should I surrender my financed car before or after I file bankruptcy?

AFTER!!!

I have a current client who is getting ready to file. He has 2 financed vehicles: a 20 year old BMW and an 8 year old Toyota Tacoma. One of them is a lemon and has required transmission repair 3 times in the past year. The lemon is currently taking up one of his 2 assigned spots at his apartment, and he wants it gone now. However, we won’t be filing bankruptcy for another week or so.

What surprised me about the scenario is that his Toyota is the lemon. Who would’ve thought that the boring, dependable Toyota truck would be the problem here? That BMW probably looks fantastic, but when they start to break down, they really start to break down.

He wants to surrender the truck now, file bankruptcy in a week, and then list that loan in his bankruptcy. Bankruptcy will wipe out his liability on the repo and eventual sale of the truck. Unfortunately, his timing is off.

If he surrenders first and then goes bk, his credit report will show a repossession and a bankruptcy. That repo will stain his credit for 7 years, in addition to the bankruptcy sitting on there for up to 10 years. This gives him 2 black marks on his credit.

If he files bankruptcy first, and surrenders the truck the next day, the creditor CANNOT list the vehicle as a repossession. By filing bk and then surrendering the truck, he only gets the one negative hit on his credit (instead of 2).

It’s a little obnoxious having that truck sitting there for another week, but it’s definitely worth it. Your credit is a lot like a reputation; it takes years to build it up and only a few minutes to ruin it. You can recover from bankruptcy and repossession eventually, but you’ll recover more quickly if you try not to make your credit that much worse.

My bankruptcy case was just dismissed because I forgot a filing fee payment. What do I do?

It depends. You can either:

  1. pay the filing fee and file a motion to vacate the dismissal, or
  2. file a new case and pay the full filing fee up front.

So when I file a case, I can file an Application to Pay Filing Fees in Installments with the bankruptcy court.  This allows you to pay the $338 (for a Chapter 7) or the $313 (for a Chapter 13) with the court over two or three installments AFTER file the bankruptcy case.

The biggest problem occurs when you forget to make one of the payments.  When you miss a payment, the case is automatically dismissed, and this administrative dismissal removes your bankruptcy protection.  The Automatic Stay is gone, which means that creditors can now call, sue, garnish, levy, and foreclose.  This is a pretty bad thing.

You get two options here:

  1. I can file a Motion to Vacate Dismissal, or
  2. We can file a new case.

Motion to Vacate Dismissal

I can file a Motion to Vacate Dismissal (which means that the Court “takes back” its dismissal and reinstates the case), but the hearing is usually about 25 days away, I may not be able to file it right away, and your creditors can start hitting you again during that 25 day waiting period.

So yes, you can pay the filing fee in installments, but if you miss one, all hell breaks loose, and it takes forever (25 days seems like forever when you’re waiting) to clean up.

The hard choice comes when you were facing garnishment originally. You probably filed that case quickly to stop a garnishment, and when the case is dismissed, the creditor can start garnishing you again, immediately. However, this is not automatic. They need to realize that your case was dismissed and notify your payroll office to start up the garnishment again.

File a New Case

We can file a new case right away to stop garnishment, but this is usually a bad idea. When you do this, you have to pay those filing fees again. Even worse, you now have 2 bankruptcies on your credit. They will sit on your credit as public records for the next 7-10 years.

But, I have had rare situations where a new case really was the best route. You’ll need to talk to your attorney about this one.

How fast can you file a bankruptcy case to stop a garnishment?

Pretty darn fast.

Honestly, I can prepare and file an emergency case the same day you call. But, and this is a big BUT, there are some things you need to do first.

A full bankruptcy petition is a huge legal document. It is usually 65-85 pages long, not counting the copies of 6 months of your paystubs and your last 2 years of tax returns. Thankfully, you don’t have to file a full petition to stop a garnishment. You can file a skeleton, or skeletal petition, which is literally a bare-bones petition.

What a skeletal petition needs:

  1. your name/social/address
  2. your online bk class certificate (this takes you 1 hour to complete)
  3. a list of creditors.
  4. payment to your attorney BEFORE you file.

Why do attorneys hate skeletons?

I know, it sounds easy, but there’s a lot that goes into it. Bankruptcy attorneys hate filing skeletal petitions. The reason why is simple: when you’re taking emergency measures and short cuts, you can really screw up a case. Your bankruptcy attorney has to do his “due diligence” on your case, meaning that he has put the time and effort into reviewing your assets to make sure that you don’t have something that you’ll lose in bankruptcy. Examples include too much equity in your home or car, or a huge tax refund that you haven’t received yet, or maybe even an inheritance.

For instance, I had a client once who had the rights to a small portion of the royalties from a James Taylor song. (I think of this case every time I hear “Fire and Rain” on the radio. His portion of royalties amounted to guaranteed income of around $300 a month. If I had filed a chapter 7, the bankruptcy trustee would have sold that right and used the money to pay off creditors. Instead, we filed a chapter 13 and used that monthly income to make a very modest payment to creditors over 5 years. If I had filed a skeleton without all of the facts, my client would have lost the right to receive $300ish a month for the rest of his life. That’s a big deal.

Why do skeletons work?

In many bankruptcy cases, my clients don’t have a proverbial “pot to piss in.” In reality, they probably do own at least one pot, but their assets are minimal or are protected by our state exemptions. If I can carefully review their assets in detail before we file, there’s not much room for error. It helps that I’m old and have done this thousands of times.

Just remember that your attorney is going to want to get paid before he does the work. He will also have to drop everything else he’s doing to prepare the petition. It’s a hassle, for you, for him, and for everyone involved. But, it can be done.

Here is a video I made on filing a skeletal petition (and yes, I know my face is funny. The left side doesn’t work, so get over it).

And here’s an earlier blog post on the same issue: https://robertspaynelaw.com/myutahbankruptcyblog/2015/04/06/how-long-does-it-take-to-prepare-the-bankruptcy-paperwork-in-an-emergency/

Is the bankruptcy trustee going to go through my Venmo, CashApp, and Paypal accounts after I file?

Oh yes he is! And even worse, the bankruptcy trustee can take any money you have in hand or on deposit on the day we file.

On the day we file bankruptcy, you don’t want to have much in the way of liquid assets (like cash or money on deposit on a bank account). In theory, the trustee can take the money you had on the day you filed and use it to pay creditors. This means Venmo as well!

For instance, let’s say you file a chapter 7 bankruptcy today and have $1,500 in your bank account on the date of filing. Tomorrow, you spend that $1,500 on your monthly rent. One month later, when you meet with the bk trustee, he will ask you to turn over that $1,500 so that he can use it to split between your creditors. When you try to explain that you spent the money on rent after filing, he won’t care. You had it on the day of filing, and he wants it now.

On the day you file bankruptcy, your bankruptcy estate is created. Everything you own on that day is part of your estate. Basically, the bankruptcy paperwork takes a snapshot of your assets for that day. (If you receive your paycheck the next day, that’s okay. You didn’t have those funds on the day you filed). The trustee goes through your estate, takes things that can’t be protected (like the $1,500) and uses them to pay creditors.

On the day you filed, you had the money, and he wants it. It wasn’t your money to spend. It was (and is) his. If you cannot turn over those funds, the trustee can make your case fairly awful. In extreme circumstances, he can even throw out your case and deny you a discharge of your debts.

One month after we file, the bk trustee will ask for a copy of your bank statements going back anywhere from 1-3 months before you filed. This shows all of your transactions and payments. This shows clearly when you paid your mom back or when you transferred money to your Venmo account to hide it from the trustee.

Unfortunately, the trustee has been doing this much longer than you, and he has seen almost every trick people use to hide money. He will ask for transaction reports or statements from not only your bank accounts, but your quasi-financial accounts like Venmo, Cashapp, Paypal, and any others that you can think of. If you had money in those accounts (or strange transactions), it can cause a world of hurt for you and your case.

The safest way to handle it is to disclose everything honestly. If you have a little extra money right before filing bankruptcy (which is rare), go build up your food storage. It’s hard to punish someone for stocking up their food storage to weather a storm.

What happens if I do not reaffirm my home mortgage or my car loan? And why do they say I can make “voluntary payments” if I want to?

Short answer: you can generally keep the car or home, so long as you keep paying on the loan

Long answer: It’s complicated.

When you file bankruptcy, it generally discharges, or wipes out, almost all of your debt. However, you can pick and choose which secured debts you’d like to keep. For example, if you want to keep your home mortgage or your car loan, you check a box that says, “reaffirm.” This lets the bank know that you want to sign an agreement AFTER filing the bankruptcy, where you promise to keep making the same payments, balance, schedule, etc.

I’ve written a few blog topics on reaffirmation generally, and those links are listed below.

If you reaffirm the debt, it keeps reporting on your credit, and you have to keep paying on it. If you fall behind an face a repossession or a foreclosure after signing the reaffirmation agreement, that debt survives the bk, and they can sue you for the difference.

(Yes, you can change your mind and cancel or rescind a reaffirmation agreement, in some situations).

But what happens if you don’t reaffirm the debt? Normally, you surrender the collateral (like the home or car). In some situations, you can do a “ride through,” where you ride the car through bankruptcy and keep making payments. They won’t report it on your credit, but you can keep it so long as you stay current.

Some banks won’t let you do a ride-through, and they will still repossess if you fail to reaffirm.

As for the home, so long as you keep paying on it, it’s yours.

As for “voluntary payments,” well, they have to say that. When the debt is discharged in bankruptcy, they cannot legally collect on it. But if you call customer service and voluntarily make a payment on the loan, they are glad to accept your money. That’s why they keep saying, “voluntary.” No one is twisting your arm and trying to collect that payment.

Here are a few blog articles on reaffirmation, cars, homes, and not reaffirming:

Can the bankruptcy trustee take my spouse’s property if I’m the only one who filed bankruptcy?

Maybe.

It comes down to a lot of factors, but if you want to boil it down to a simple test, here it is: if it smells funny, then you’ve got a problem.

If the property is clearly your spouse’s, was always theirs, you never helped pay for it, and they’ve owned it for some time, then you do NOT have an ownership interest. However, if you bought it together, or if you’ve made all of the payments on it, or if you gifted it to her, then you’ve got an ownership problem.

When you file bankruptcy, your bankruptcy estate is created. This estate means all of your property, real, personal, and intangible. So if you own a home, a car, and have a right to receive a $5,000 tax refund, then all of these items go into your estate.

We try to exempt, or protect your property so that the bk trustee cannot take your estate property and sell it off to pay creditors. For example, in Utah, only $3,000 of your car’s value is protected. So if you own a car worth $10,000 free and clear, then only $3,000 is safe, and the bk trustee will take it and sell it off. He’ll give you $3,000 and use the rest to pay creditors (less his very healthy finder’s fee).

However, he can’t touch your spouse’s property. That being said, there are various degrees of ownership. If she’s owned her home for the past 10 years, and you only recently met and were married last year, then that home is hers, and the trustee won’t touch it. On the other hand, if you two bought the home 30 years ago, and you were the sole provider, then your money paid off that mortgage. You may not be on title, but you have an “equitable interest,” and there will be problems with the trustee.

Even worse, let’s say that you have a Ming vase that you inherited from your Aunt Mildred. It’s worth $80,000. Two weeks before filing bankruptcy, you “give” it to your wife. That doesn’t count! It’s a fraudulent transfer. The bk trustee will avoid the transfer, sell the vase, and pay your creditors. The shade of Aunt Mildred will be very displeased with you.

It’s all complicated and is usually figured out on a case by case basis. That’s why you want to meet with a bk attorney. Tell him everything. That way he can give you honest advice on how to protect your property (if you can).