Marriage is a contract forged by love and commitment. During the course of marriage thanks to the security and the trust the relationship is founded on, married folk invest in the marital relationship long-term thru the acquisition of assets and shouldering debts together. In planning for its dissolution, spouse customarily do 1 or 2 things. They may enter into a premarital agreement commonly known as a prenuptial agreement or they may have an ante-nuptial agreement. Many states don’t acknowledge the former and a pre-nuptial agreement regardless of the best planning may be nullified in Court on many grounds. While some separated spouses together are literally capable of making a friendly marital settlement agreement which a court can accept as fair and not unconscionable by their terms. Most spouses rather than working through their arguments about settling their affairs unfortunately take following plain paths
(1) raid combined accounts
(2) sell off marriage assets deceitfully
(3) file bankruptcy to avoid conjugal obligations including getting stuck with outrageous legal fees.
(4) do nothing.
A Chapter 7 Bankruptcy attorney cannot advise a customer to select choice 1 and 2 since doing so would be unethical and illegal. Actually a any lawyer would not counsel their customer to do nothing. While option 3 is both legal and sensible. Timing of filing a bankruptcy when a divorce is eminent is critical to accomplishing the objectives of the bankruptcy. The order of the filing of a divorce and bankruptcy from either a petitioner or respondents standpoint is vital. So as to become eligible for a total bankruptcy known generally as a Chapter 7 an individual must:
1- Be money poor. He or she’s day-to-day living expenses and normal business expenses must surpass earnings as of the date of filing.
2- Pass the Means Test: The debtor must fall within the guidelines outlined by Congress in BAPPCA, 2005. The means test is a snap shot of a debtor’s average monthly earnings for the 6 calendar months which proceed the date of the filing. The debtor’s household earnings must be less than the states median household income for a family the dimensions of the debtors household. Meeting the income standards set forth in (1) and (2) may precipitate the low income debtor to split and leave the marriage residence.
3- Timing of Filing a Bankruptcy affects the dischargeability of marital debt. The debtor must file their bankruptcy before a domestic court judge orders that he pay in part or in full any of the outstanding marriage debts. Once a domestic court orders the payment of marriage debts, the debt becomes on-dischargeable to the partner supported or held harmless by the court ordered payments. To paraphrase the non-debtor spouse is guarded by the domestic court and the bankruptcy court cannot avoid or provide a discharge the debtor-spouse of the enumerated obligation. Thus if the court orders Mr. Jones to pay his wife’s HSBC credit card, the debt is rendered non-dischargeable. Domestic Support Debts are non-dischargeable in bankruptcy. Juvenile Support, upkeep, domestic support obligations as well as marriage settlement agreements and domestic court orders are all non dischargeable under Section 523 of the United States Bankruptcy Code.
4- Order of Filing Cases. In a best case scenario where a debtor is suitable for filing a chapter 7 bankruptcy and the bankruptcy estate would not be subjected to liquidation, the debtor-spouse should file bankruptcy first before a divorce is filed, whether the divorce is ultimately filed by the debtor or the debtor’s spouse. Filing bankruptcy first renders the allocating of paying certain marriage liabilities, i.e. Credit cards moot. As a caveat, no court of law can order a debtor to pay any obligations discharged in a bankruptcy. This is vital when the debtor’s overall concern is divesting herself of obligations. In the event their exists marital or separate asses that are non exempt and have some liquidation value it is could be unfavourable for a debtor to file bankruptcy. A court chosen bankruptcy trustee would no doubt intermediate in the divorce case and dictate that sale of assets and affect the disposition of the assets in the separation. The debtor certainly benefits from the bankruptcy as the debtor may get a. Discharge their debt, whether marriage or separate debt. Secondly, the bankruptcy code would dictate the way in which the creditors are paid and the scale of their payment from the bankruptcy sale.
In the event a divorce case is outstanding prior to the filing of bankruptcy, the bankruptcy trustee has authority afterwards under Section 547 of the bankruptcy code to avoid transfers of assets, even if the transfer or sale of an asset was done pursuant to the order of a domestic court judge. In the event spouses are friendly and propose to pursue and uncontested divorce, or in the event negotiations are considered for a marriage settlement agreement, a consultant and the parties must give careful consideration to making the agreement to preclude the bankruptcy trustee from intending to exercise his powers to seek court orders invalidating transfers. The allocating of assets must be dispensed equitably where both parties end up with comparatively the same cash equivalence of assets. Where there's a disparity in the value of assets exchanges or distributed, a bankruptcy judge could find in favor of the trustee and deem such exchange a fraudulent transfer..
