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Bankruptcy and Family Law – Does One Affect the Other?

Bankruptcy can be helpful for family finances, especially in this current economy. Consumer credit debt can be erased, leaving more money for day-to-day necessities and other important commitments such as child support.

There are other reasons bankruptcy can be helpful. You can eliminate debt from old taxes, and if debt issues are solved before filing for divorce, the dissolution proceedings often go far more smoothly.

A married couple needn’t file for bankruptcy as a couple, but there may be consequences to community property if one spouse files alone. Non-exempt assets are automatically included in the bankruptcy estate of one spouse files for bankruptcy protection alone. The sale of these non-exempt assets ensures that money received from the sale can go toward outstanding debts.

However, most chapter 7 bankruptcy petitions have no assets, so most of the time, none of the assets are counted because all property is considered exempt. However, if one spouse files for bankruptcy, the automatic stay will not apply to the spouse who did not file.

The 2005 amendments to the bankruptcy law changed the law so that the debt originating in divorce proceedings will not be discharged in a chapter 7 bankruptcy. However, bankruptcy law states that all debt, even if it is not dischargeable, must be included in the bankruptcy petition paperwork.

Debts to a current or former spouse must be listed on bankruptcy filings, but this does not mean that the debt will be discharged or that the filing party is trying to discharge the debt. If your spouse is filing for bankruptcy, you must know this fact and take action to defend your property and your interest.

When one spouse is personally responsible for a debt, and the other spouse has filed for bankruptcy protection, creditors can come after non-exempt assets and sell those assets to pay debts. Community property the couple has together during the course of the marriage can be held responsible for debts incurred during the marriage.

Assets such as inheritances received by one spouse during the marriage, property owned by one spouse prior to the marriage, and gifts to one spouse during the marriage are not property. Earnings and income of either on both spouses, real estate and other assets acquired during the marriage are considered community property.

If a couple seeks a divorce during a bankruptcy, family courts will not be able to divide any assets that are in the bankruptcy estate, except where the assets are exempt. Community property gets divided during a divorce proceeding. When the assets are divided, the property is no longer community property as it becomes personal property. Creditors are no longer allowed to go after community property to satisfy debts because community property has ceased to exist.

Although credit reporting agencies are not supposed to list the bankruptcy on your credit report if your spouse filed for one and you did not, the bankruptcy may be noted on your report anyway. Whether this practice is proper from a legal standpoint, however, is still unclear.

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Tax Refunds in California Chapter 13 Bankruptcy

Exclusion of Tax Refunds in California Bankruptcy Cases

Filing for Chapter 13 bankruptcy protection comes with its requirements just as in any other form of individual or business case, among the basic requirements in Chapter 13 bankruptcy case is the need to provide tax refunds. 

When filing for a Chapter 13, the courts would require you to hand over your tax refunds to the appointed trustee to pay off your creditors. This is unlike a Chapter 7, which does not take into consideration your tax affairs as being part of your bankruptcy estate.

In Chapter 13, all of the debtor’s disposable income is channeled towards repaying their creditors through the court-appointed trustee. In some situations, however, California bankruptcy courts would excuse one from having to include their tax refunds in the bankruptcy estate.

The inclusion of the tax refunds in the bankruptcy estate stems from the fact that the trustee may not have included it in the calculations of your necessary expenses when formulating the Chapter 13 bankruptcy plan.

Thus one can dispute its inclusion when it comes up after Chapter 13 protection is underway.

To do that, however, you would have to submit the proof in a California bankruptcy court that you will depend on that tax refund to make your repayment plan work.

One way to do this is to argue that your necessary expenses increased, which the initial plan would likely not have taken into account, thus requiring you to keep the refunds to meet daily expenditure.

An alternative way of getting your tax refund excused is to include a provision in the initial version of the repayment plan excusing you from having the tax refunds in the calculations.

However, you would have to be careful in this strategy to avoid objections of the creditors and trustees, who may view the refunds as being surplus cash. Asking for a limited amount of the tax refunds, in this case, could increase your chances of being excused from having to use it in debt repayment.

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California Chapter 11 Bankruptcy Cases Continue Despite Reopening

Intelsat SA Seeks California Chapter 11 Bankruptcy Protection Ahead of Spectrum Auction

Amid the raging COVID-19 pandemic, several companies have been forced to seek bankruptcy protection to avoid creditor actions. While most of the latest cases have been directly caused by the government action to prevent the spread of the deadly pandemic, a significant number of bankruptcy cases are not directly related to the COVID-19.

In a last-ditch move to save its assets from creditor actions, Intelsat SA opted to file for Chapter 13 bankruptcy late Wednesday. The indebted satellite company opted to seek California bankruptcy protection after falling short of funding required to provide airwaves to wireless operators.

Before filing for California bankruptcy protection, the company was set to participate in a future wireless-spectrum auction by the government.  The company, however, fell short of required funds after being weighed down by almost $15 billion debt to creditors.

The forthcoming auction involves a swath of spectrum currently in use by satellite operators, which the Federal Communications Commission (FCC) plans to repurpose for 5G networks.

A successful auction, though financially burdening, could spell the difference between the company’s doom and prosperity. If the bankruptcy claim is approved, the company will be able to participate in the forthcoming auction, which could boost its financial standing.

While announcing the new development, the company also cited the economic slowdown affecting several markets as a result of COVID-19 as being one of the causes.

The company also announced that it planned to continue its everyday operations, after securing and committing up to $1 billion new funding in the form of debtor-in-position. If the courts also approve of this move, the company will be able to run its operations normally while it proceeds with its bankruptcy case.

Under Chapter 11 bankruptcy that Intelsat SA is seeking, a company has to reorganize its debts to creditors with a plan subject to the approval of the courts. Since the company’s operations will not be crippled as a result of the bankruptcy, it can continue with its operations as long as it designs strategies to meet its debt reorganization goals agreed upon by both the creditors and the bankruptcy court.

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California Bankruptcy Courts and The Best Effort Requirement

Debt Repayment Plan in Chapter 13 California Bankruptcy

Among the most commonly used bankruptcy protection clauses are Chapter 13 and Chapter 7 for individuals dealing with financial difficulties. While most people usually aim for Chapter 7 when filing for bankruptcy, many of them end up qualifying only for Chapter 13 instead.

Chapter 13 bankruptcy protection allows individuals to reorganize their debts, in contrast to the liquidation done through a Chapter 7 case. For this purpose, you would need to formulate a repayment plan subject to court approval to meet your debts.

A California bankruptcy court will, however, not issue an approval of the repayment plan unless one can demonstrate that the content therein is the “best-effort” of the individual at repaying their debts to the creditors owed.

The court will thus assess your secured and unsecured debts to determine how they have been prioritized.

California bankruptcy law dictates that one should make a plan that will channel all disposable income towards the payment of the unsecured debts. Since the law also recognizes that you would need to sustain yourself and your family during the bankruptcy discharge, it allows you to divide your income to cover living expenses, upon which the rest should be used in debt repayment if filing for a Chapter 13 bankruptcy protection.

The courts will additionally subtract from your income the amounts required to repay priority debts and secured ones when assessing the disposable income available for repayment of unsecured debts.

Secured debts, by definition, comprise those that are tied to an asset while unsecured debts are those that are not.

Credit card debts, for instance, issued by health care providers, are considered unsecured and usually take the last priority in a Chapter 13 bankruptcy repayment plan. Priority unsecured debts, on the other hand, include those involving child support and government taxes among others.

The latter is usually considered as being especially crucial in formulating a repayment plan. If the bankruptcy court is satisfied with your prioritizing of these debts in your repayment plan and that what you present is your best effort, the plan will be approved and you enjoy protection from creditor actions.

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How to Manage Student Loan Debt

Strategies For Managing Student Loan Debt

Student debts can be very confusing and overwhelming. Below, we advise you on how to lower your payments or get rid of your debt altogether. While some of these services are free; others, such as credit counselors and legal advice, generally cost money. Personalized help may be worth paying for if your situation is complex.

  • Know Your Debt

Stay in touch with your creditors and always be aware of what you owe. You can make a list of what and who you owe on your student loan debt. Keep track of your lender(s), the balance you owe and your repayment statis (current balance, due dates, end dates, interest, etc.).

  • Review Your Repayment Options

A 10-year repayment plan is typical with student loan debt, but if that isn’t going to work for you there are other options out there. You can extend your student loan debt payment plan out beyond the 10-year marker, but an even longer plan will increase the interest on the life of the loan even though the monthly payments are lower. An Income-Based Repayment Program maybe something to consider.

  • What is Your Grace Period?

Every student loan has a grace period, which is the timeframe allowed by the lender between the time you finish school and the time your first payment is due.

  • Update Your Records

Stay on top of your end of the bargain by updating your lenders if you move, change your contacts, or have a change in your financial situation such as job loss. Make sure you allow your lenders to do the same with you.

  • Ask For Help

If you cannot keep up with your student loan debt, get help! Don’t default.

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California Bankruptcy Cases Likely to Increase as Airlines now Seek Protection

Bankruptcy Cases in California Expected to increase Even as Businesses Reopen

The coronavirus pandemic has now claimed among its economic victims one of the largest airlines in Latin and Central America. Avianca (AVH) is one of the longest continually running airlines in the US. The company becomes the latest to succumb to the loss of business due to the pandemic after the government instituted stringent travel measures to control its spread.

California was one of the first states to go into lockdown following the spread of the COVID-19 pandemic in the country. Having been in virtual lockdown for the past ten weeks, the government is finally opening up its businesses albeit with a raft of precautions.

The loss of business due to stringent government regulations restricting traveling has affected airlines the most as interstate travel and international flights are the backbone of their economies.

California Pacific Airlines earlier filed for Chapter 11 California bankruptcy protection in a bid to reorganize its debts with creditors after the business went down. It remains uncertain how many more will follow the same route due to the impacts of the COVID-19 pandemic.

Even as businesses reopen, the government announced that the economy would only reopen to 70% capacity in the following months, leaving the rest in the dark. Even so, the economy is not expected to recover immediately. Thus companies filing for California bankruptcy protection are expected to rise in the following months.

Economic experts have already predicted a rapid increase in bankruptcy cases over the next 18 months. States like California, which have been in a lockdown for the longest time, remain the most affected by the drop in business while the coronavirus pandemic spreads even further.

The state continues to battle the pandemic on one side while struggling to keep its economy running on the other. Employment levels rose following the lockdown with millions of its citizens filing for unemployment benefits from the state to alleviate their financial situation. Governor Newson, however, urged the residents to remain optimistic in the face of the pandemic and resume business operation while observing prevention measures to limit its spread.

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What Happens to Student Loans in Bankruptcy?

Can Your Debts Be Discharged in Student Loan Bankruptcy?

When a debtor first files for bankruptcy, he may still have student loans in bankruptcy that he needs to repay. Unlike many other debts, student loans are not usually discharged during the process of going through bankruptcy. There are times when a person may discharge his student loan debt, but they are the exception rather than the rule.

  1. Permanent and Total Disability

Debtors can have student loans in bankruptcy discharged if they have suffered from some form of permanent and total disability. Because non-physical disabilities are hard to prove, a person with a mental disability cannot expect this form of debt relief.

  1. Extreme Financial Hardship

In a case of rare financial hardship, a judge may rule that a student loan in bankruptcy may be discharged completely. As with the disability case, this happens exceptionally rarely. Most debtors should expect to have a repayment plan worked out that includes their student loans.

What Else Can Happen?

If a person’s student loan is in default, the government can take a person’s tax return checks until the debt is paid. Wages can also be garnished, although a judge may provide temporary relief from wage garnishments after a person is declared to be financially insolvent.

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California Chapter 7 Bankruptcy: No Asset Case

No Asset Cases in California Bankruptcy and What it means to Creditors and Debtors

In general, most people that qualify for a Chapter 7 bankruptcy are those with few assets. The main reason for this is that one requires to pass the means test to be eligible for this particular type of bankruptcy. Unless one has an exemption from the means test, they would have to undertake the evaluation, failure to which they would be directed to file a Chapter 13 bankruptcy case.

California bankruptcy courts do not require the debtor in a Chapter 7 case to hand over their assets to the court-appointed trustee. Thus, the bankruptcy would be a ‘no asset’ asset case given that such assets would often fall within the exemptions provided under California bankruptcy laws.

Since the debtor in a no-asset case gets to keep all their property, the creditor in such a case would be the biggest loser as they would not be paid from the bankruptcy proceeding. Also, California bankruptcy courts offer such a creditor no option to ever collect on their debts in the future as it would more likely discharge most of the debts owed by the debtor.

It is this particular aspect of a no-asset case that makes Chapter 7 bankruptcy attractive to most debtors while presenting a nightmare for the creditors involved with such an individual

Since the creditor in such a case will most likely not be receiving any compensation from the debtor, California bankruptcy courts will not require them to file a proof of claim and will write to such a creditor to inform them as such.

Debtors seeking Chapter 7 bankruptcy protection should always be wary of common pitfalls that are easy to overlook. It is essential, for instance, that although the Chapter 7 no-asset case involves liquidation, it usually depends on the exemptions set by the state. The non-exempt property will be handed over to the bankruptcy trustee to pay off creditors.

A debtor should also be keen to disclose all their assets without concealing them for any reason. Hiding assets may result in penalties as well as discontinuity from the Chapter 7 bankruptcy protection at any time.

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How to Avoid Home Foreclosure

Six Tips to Avoid Home Foreclosure

Home foreclosure is a real fear for many people in our struggling economy, however, with these six easy tips, home foreclosure can be avoided:

  1. Spend your money intelligently. This rule seems simple, but doing something like cooking dinner at home rather than going out to eat can save a lot of money during rough times. In other words, know what your financial priorities are.
  2. Make sure you understand your mortgage plan.
  3. Contact your lenders when you fear you may have a problem making payments. Lenders can often come up with a new plan for payment.
  4. Read all documents sent to you by your lenders. Do not sign anything you do not read or understand.
  5. Beware foreclosure recovery scams. While there are some people out to help you, there are also others that want you to sign a contract out of being desperate. Be careful and refer to tip four.
  6. Talk to a housing counselor. This tip can actually help you with the rest of the tips.

There are many tips for avoiding this tragedy, but countless foreclosures could have been avoided with just these six.

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California Bankruptcy Courts Urged to Hire More Judges

California Bankruptcy Cases Expected to Soar as State Reopens

Amid the raging COVID-19 pandemic, several companies have been forced to cut back on their operations, with some sending their staff on mandatory leave as a means to curb the spread of the virus. Others have even resorted to lay off their staff due to the negative impacts of the pandemic on the economy.

Despite the measures taken by the government to cushion the people from financial hardships resulting from the pandemic, the extended stay at home orders in some states continue to impact negatively on the population.

In California, several companies have already filed for Chapter 11 bankruptcy protection in a bid to seek reorganization of their debts with creditors. Several more are hanging on the edge with the possibility of California bankruptcy filing rising as the pandemic continues.

Job losses have soared since the enforcement of the government directives restricting movement and public gatherings. With the pandemic showing no signs of ending anytime soon, States have been forced to implement new measures to ensure business continuity even as the battle against the deadly virus continues.

California, one of the first states to institute a lockdown announced yesterday that it would reopen business operations, citing the plight of citizens who had earlier protested the state’s prolonged lockdown.

Though California bankruptcy cases remain low at the moment, millions of the states’ citizens have been relying on government assistance to stay afloat after the prolonged lockdown state left most of the unemployed.

Legal scholars are now urging Congress to appoint more bankruptcy judges in anticipation of a surge in bankruptcy cases following economic disruption by the COVID-19 pandemic.

The scholars cautioned the congress that the current number of bankruptcy judges could easily be overwhelmed by the cases that are likely to rise over the next 18 months as a direct result of the coronavirus economic disruption.

In his speech on Friday, the California governor, Gavin Newson, announced that the state would reopen in four phases. Roughly 70% of the states’ economy, reopen in the coming months. This would mean that many of the state’s workforce will still be left out, galvanizing the bankruptcy cases as predicted by economic scholars.