Karen Ann Ulmer, P.C.
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Posts tagged "bankruptcy"

Why do I have to attend Credit Counseling?

First, it is required by law. In accordance with Title 11 US Code Section 109(h)1, in order to be a debtor and file a Bankruptcy Petition a person must have in the 180 days before filing the petition completed received a certificate of compliance that they have completed pre-filing counseling with an approved agency. A debtor is also required to complete pre-discharge debtor education after you file. Both are required before the filer's debts can be discharged however the pre-filing counseling must be completed before filing.

Distribution of Debt during a Divorce

During the divorce process, information is gathered not only on assets, but also on debt. Marital debt is debt that is accumulated during the divorce, regardless of the name of on the account. This means that if you have a charge happy spouse, you may be liable to share in the debt created by their spending spree. The balances of the credit cards and debts as of the date of the separation of the divorce is the date to look at for purposes of debt distribution. Since divorce often takes awhile, you will want to gather this information as soon as you separate. You will also want to keep track and gather proof of every payment you make on this debt since you separated so that you can seek credit for this payment when you get divorced. If your overall marital estate is primarily distribution of debt, you may want to consult with a bankruptcy attorney. Any debt that is discharged in bankruptcy does not get considered in the divorce if it is discharged prior to the divorce going through since it no longer exists. It is always wise to consult a bankruptcy attorney when there are high debts in divorce and few assets to determine not only whether to file bankruptcy or if you qualify but when to file it.

How to Approach Debt in a Divorce

When you are getting divorced, most debt, with a few exceptions, accumulated during the divorce is marital debt regardless of the name on the debt. The first step in approaching your debt is to find out what you have. I recommend that you start by obtaining your free credit report. You can obtain one from each of the three major credit bureaus once a year. It may be a good idea to stagger it every three or four months so you can pull one from each throughout the year. Review your credit report to obtain balances, or identify accounts you either did not know about or forgot about. You should also have a title clerk do a search on your real estate to make sure there are no unknown liens on your house.

Bankruptcy

As it relates to individuals considering bankruptcy the two most frequently used types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 provides for the liquidation of assets to satisfy debts owed. All nonexempt assets are gathered by a trustee and sold to pay off debts. Certain assets may be exempted from liquidation depending on federal or state laws. The individual filing for Chapter 7 bankruptcy will need to include a schedule of exempt property with their bankruptcy petition. Most Chapter 7 bankruptcies involve a situation where all the property of the individual is exempt or there are no assets. In that scenario, the trustee makes a report to the court that there are "no assets" for liquidation and no distribution is made to creditors. 

Consequences of Bankruptcy in Family Law

Financial obligations in the context of a divorce can create a strain on the party ordered to pay. If a party is simply unable to keep up with all their obligations they may consider filing for bankruptcy. A bankruptcy filing generally results in an automatic stay meaning the party filing for bankruptcy is protected from creditors seeking payment from them until the bankruptcy is resolved however there are exceptions to this general rule. 11 U.S.C ยง 362 (b) provides that the filing of a bankruptcy petition does not operate as a stay for any proceeding regarding the establishment or modification of an order for domestic support obligations, concerning child custody or visitation, or for the dissolution of a marriage (including decree with court order or property settlement agreement except to the extent that such proceeding seeks to determine the division of property that is property of the estate). Accordingly, a party may not seek to dismiss all their obligations in a family law matter by filing for bankruptcy. Pennsylvania case law reiterates this point. In Schulze v. Schulze, 15 B.R. 106 (1981), the court held that "there can be no doubt that the state court action as it pertains to divorce and the custody of the minor children should not be stayed."

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