Bankruptcy and Divorce

Financial problems are often a complication that may have added to the stressful causes of a divorce. Divorcing couples who are deeply in debt may wonder whether they should file for bankruptcy before or after they dissolve their marriage. There is no “one size fits all” answer because there are so many factors that need to go into the decision. There are advantages and disadvantages regardless of when you decide to file for bankruptcy. However, it is best to understand your options by discussing the details of your case with a qualified divorce/bankruptcy attorney prior to making any decisions.

Filing during a Divorce

Filing for bankruptcy in the middle of a divorce can be tricky. When one spouse files for bankruptcy alone, the result could be that only his or her portion of the debts are discharged. This could leave the other spouse with quite a bit of debt to resolve. Furthermore, under divorce law you may still be responsible for your share of the debt to your spouse.  For this reason, it is best to come to a bankruptcy decision jointly, whenever possible. If you are having financial difficulties it is imperative that you let your divorce attorney know immediately, as it could affect the decisions of the divorce. 

Automatic Stay

When a bankruptcy is filed during a divorce, it puts an automatic stay, or hold, on the division of property. It does not impact the issues of child support or custody. The hold will lengthen the time it takes to obtain a divorce, since the financial debt matters must first be sorted out. This could take considerable time, in some instances. However, it may be beneficial to resolve debt problems rather than allowing them to have a negative influence on your long-term money situation.

Bankruptcy after Divorce

If you wait until your divorce is final to file for bankruptcy, you could still run into trouble. When a former spouse files bankruptcy after the divorce, creditors do not have to follow the divorce decree where debts were distributed. Instead, they will pursue collection of the debt with the spouse who did not file bankruptcy. Therefore, it could be beneficial to deal with the bankruptcy before finalizing the dissolution of marriage.

Careful Consideration

Since everyone’s marital and financial situations are unique, there is not one correct solution. As with most of the divorce decisions, the choice to file bankruptcy is filled with advantages and disadvantages. There are many important consequences of bankruptcy that need to be weighed before an informed decision can be made. An experienced divorce attorney is essential, especially in cases where there is a potential for bankruptcy.

Fresh Start

As you divorce you are likely looking forward to having a fresh start. You want to put your divorce and all of its baggage behind you. If you are struggling with debt before the divorce, it will probably still haunt you afterwards unless you take the steps necessary to resolve it. The decision to file bankruptcy is one of the most important choices that can be made as part of the divorce. However, it can be a new beginning, which would not be possible otherwise. Trust that your divorce and bankruptcy attorney will assist you in getting the new beginning you deserve. If you are about to go through a difficult divorce, count on the experienced legal team at our firm to assist you during this difficult time. Contact the Tampa divorce attorneys and bankruptcy lawyers at All Family Law Group, P.A. in Tampa Bay at 813-816-2232 for a consultation at no charge or email us.

By Lynette Silon-Laguna Google+

Can Trustees Go After Children’s College Tuition Payments?

A recent trend in bankruptcy law is for trustees, the individuals responsible for collecting money for creditors, to go after tuition payments parents made to their children’s undergraduate institutions. As the trustees see it, the funds parents sent to those institutions should have instead been used to pay off the parents’ debt. Since 2008, over 25 colleges and universities have been sued to recover tuition payments.

What is a Trustee?

A trustee is the person who is responsible for taking care of the financial affairs of a bankrupt individual. They have broad power to retrieve funds spent by the bankrupt person and give those funds to creditors.

Part of a trustee’s job involves retrieving assets that were hidden and money spent prior to bankruptcy, even if that money was spent several years before filing. If a trustee finds that the individual spent money and did not get a “reasonably equivalent value” for that expense, then they are allowed to recover it. The process of retrieving these funds is called a “claw back” based on the concept of fraudulent transfer.

What is Fraudulent Transfer?

When you file for bankruptcy, all of your property at that time becomes part of the bankruptcy estate. If you have assets or property that go above the allowed exemption amount (i.e. the maximum amount you are allowed to have to file bankruptcy), then the trustee can take that excess property to settle creditor debts. The maximum allowable amount to file bankruptcy has been believed to possibly encourage people to get rid of, or transfer, assets before filing in order to qualify for bankruptcy.

For example, if someone had an expensive car they wanted to keep, but it put their property value over the allowed exemption rate to file for bankruptcy, it is possible that an individual would sell that car to a family member for half its retail value to keep the car in the family, but not have it count for bankruptcy purposes. This is a fraudulent transfer because the family member gave away property for less than its equivalent value. In this circumstance, a trustee could “claw back” the car to repay creditors.

What’s the Argument?

It’s the same idea with college tuition payments. Just like the car, the parents did not get the “reasonably equivalent value” of their children’s education because they themselves were not the recipient of the education. While the benefit of a higher education on an individual’s future has long been established, certain courts have found the link between a child’s education and the parents’ value of that child’s education too attenuated to avoid claw back.

Though the trustee has discretionary authority to go after certain funds, he has a duty to bring lawsuits where the benefits clearly outweigh the costs. Considering that tuition rates have skyrocketed in recent years, the benefits are becoming a popular option for repayment. At minimum, pursuing tuition payments in bankruptcy is no longer dismissed because of the minimal repayment options.

What Now?

Bankruptcy courts are split on whether or not to allow this type of claw back and Florida has yet to rule on the issue. Contact the experienced Tampa bankruptcy attorneys at All Family Law Group, P.A. today to help you get back on your feet and take control of your finances. Call 813-321-3421 for a free consultation, or contact us online today.

By Lynette Silon-Laguna Google+