Getting divorced during a bankruptcy presents major ethical considerations for your Georgia bankruptcy attorney when a husband and wife file a case together (See Georgia Model Rules of Professional Conduct).  In an individual case, your Georgia bankruptcy attorney may simply need to file amendment reflecting the loss income of the spouse and a new expense list.  In either situation, the bankruptcy attorney will need to sit down with the client and review the entire case.

Divorce in Joint Bankruptcy Cases

In a joint case, your attorney has an ethical duty of loyalty to both the husband and the wife.  How can your bankruptcy attorney be one hundred percent loyal to you and your spouse at the same time if a conflict arises?  Its impossible.  As a result, most attorneys will withdraw from representing either party.  Any attorney that fails to withdraw in conflict situations may face sanctions from the Bankruptcy Court.

Example of Conflict in a Joint Bankruptcy Case

An example of a conflict that would force a bankruptcy attorney to withdraw from the case is a reaffirmation agreement.  Lets say you have a husband and wife that are joint signers on a note for a 2009 Monster Large Truck.  The husband loves the Monster Truck and does not want to give it up at any cost.  In contrast, the wife is ready to get divorced and move on with a fresh start in life.  In this scenario, it is clearly not in the best interest of the wife to reaffirm this debt.

Lets say she reaffirmed this debt.  A few years down the road, ex-husband is remarried and has two children by his new wife in his new life.  Out of the blue, he loses his job.  He can no longer afford the Monster Truck.  Sadly, the car creditor repossesses the Monster Truck.  Then, the creditor follows Georgia law and auctions it off.  Unfortunately, the Monster Truck sells for less than half of what is owed to the creditor.  Guess who is going to get sued for the deficiency?  Drum roll please.  The answer is the ex-wife.  She thought she moved on with a new start in life.  She had heard about his new wife and children.  She thought it was all behind her until the Floyd County Sheriff show up at her house one fine summer afternoon in front of all the neighbors and served the lawsuit from the creditor.

In divorce situations, it is always best for debtors to have separate attorneys.

Since hiring a new attorney to review your entire case and proceed with continuing the case is expensive, most joint debtors will beg their attorney to keep representing them both to save money.  In this situation, the attorney will have the clients sign an agreement stating that they understand the potential for conflict and that the attorney will withdraw from representing either debtor in the event a conflict arises.

In cases where there is no secured debt or when every type of secured collateral is being surrendered to the creditors, the chance for conflict is low.

Other Posts

1.  Bankruptcy and Divorce Orders /a>

2.  Should I File Bankruptcy Before or After the Divorce?

3.  How Much Does it Cost to File Bankruptcy?

4.  What is Chapter 13?

In a Chapter 7 bankruptcy, a reaffirmation agreement is basically a contract between you and your creditor that states that you agree to to treat that specific debt as if you have never filed bankruptcy. If you sign a reaffirmation agreement and then fail to pay that creditor, they can sue you and garnish your wages. Don’t ever sign a reaffirmation agreement unless you are extremely confident you will be able to make the future payments. If you sign a reaffirmation agreement, you can change your mind a rescind it before the discharge or within 60 days of signing it. If you change your mind, notify your bankruptcy attorney immediately so that the necessary papers can be filed with the bankruptcy court!

Many people who file bankruptcy are under the misconception that if they reaffirm a debt, that debt is not listed in the bankruptcy petition. Just the other day, I was meeting with a client in my Rome GA office who stated that he did not want to list his car in his bankruptcy case and that when his friend filed, that friend did the same thing in his case and had no problems. The truth is that you must list all of your creditors in your bankruptcy case or you will be in violation of the bankruptcy laws. I will never file a case for any person unless we are listing every single debt that they have. Sometimes, I will get resistance from clients who have a cosigner on a car note. Even debts with cosigners must be listed in your bankruptcy petition.

In addition to listing all of your debts in a Chapter 7, there is a page of the petition called the Statement of Intentions. On this page, a person filing Chapter 7 will state whether or not they wish to reaffirm or surrender cars, houses, and other secured debts. The creditor will mail a copy of the reaffirmation agreement to your bankruptcy attorney. After reviewing the document, your bankruptcy attorney will meet with you so that you can sign it. Then, the reaffirmation agreement will be mailed back to the creditor so that they can review it again and then filed it with the bankruptcy court.

There is a section of the reaffirmation agreement where your attorney must sign that it is in the best interests of the debtor to reaffirm. In some cases, I won’t sign off on reaffirmation agreements. For example, if the interest rate on a car note is higher than 12 percent, I don’t think it is in your best interest to sign a reaffirmation agreement. Once you sign, you cannot file Chapter 7 again for eight years. The purpose of Chapter 7 is to give you a fresh start. Can you get a true fresh start if you reaffirm some junker car with a 25 percent interest rate? I don’t think so. You would be better off filing a Chapter 13 and paying six percent interest on the car.

Second and mortgages are another situation where I won’t sign a reaffirmation agreement. If you default on a second mortgage in Georgia, the creditor can garnish your wages to collect. In most cases, a second mortgage company will not exercise their right to foreclose if you don’t reaffirm. In order for a second mortgage company to foreclose on you, they must pay off the entire balance of your first mortgage. With real estate prices in their current depressed condition, this would be economic suicide for most second mortgage holders.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

When I meet with clients from the Northwest Georgia area, one of the first questions I usually get is, “Can I keep my tax refund if I file bankruptcy?”  For some, the answer is yes and for others, the answer is no.   Most people have plans for how they are going to spend those tax refunds long before they receive them from the IRS.  For some, its clothes for the kids.  For others, its car repairs, house repairs, catching up past utility bills and on and on.  A few weeks ago, I met with some clients in my Rome office who needed all of their refund to repair their roof.  In their case, everything worked out.

So can you keep the tax refund if you file bankruptcy?  The answer to this question is maybe.  First it depends on what type of bankruptcy case you are filing.  Second, it depends on how much of your Georgia Bankruptcy Exemptions have been used up on other assets.  Third, how much of your refund can be attributed to the Earned Income Tax Credit?

Lets say you file a Chapter 7 bankruptcy.  If you have a tax refund that you anticipate receiving before your case will be discharged, the tax refund must be exempted as an asset in your case.  Every case is different.  As a general rule in Georgia, if your tax refund is less than $5,000.00, we should not have a problem.  However, you must remember that every case is different.  If you have other assets that use up all of your Georgia Bankruptcy Exemptions, we may have a problem.  We will be able to tell if you have an issue before the case is filed.  If your tax refund is based entirely on the Earned Income Credit, you should be able to keep all of it. Make sure you explain to your bankruptcy attorney the amount of your tax refund that can be attributed to the Earned Income Credit.

If you file a Chapter 13, the trustee wants every extra dime you have to be paid toward your Chapter 13 case.  As a result, they want all of your tax refund that you receive during the applicable commitment period of the plan.  However, you can keep any amount of the refund that can be attributed to the Earned Income Tax Credit. Like I said above, you must disclose all tax refund information to your bankruptcy attorney in order for him to protect any of the tax refund money.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

I have friends who buy into this myth that people who file bankruptcy go out and run up their credit cards right before filing.  The truth is that almost no one does this and those few that do end up paying it all back.

In a Chapter 7 bankruptcy, you cannot incur debt with the intention of discharging it in your case.  Under section 523(a)(2)(A) of the Bankruptcy Code, a discharge under Chapter 7 “does not discharge an individual debtor from any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by…false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.”  11 U.S.C. 523(a)(2)(A).

A great example of a debtor getting nailed by the Bankruptcy Court for going into debt with the intention of wiping it out in a Chapter 7 is the case of Bucciarelli (Bankruptcy Case No. 07-13114).  In this case, the Bankruptcy Court in the Newnan Division of the Northern District of Georgia ruled that the debtor could not wipe out legal fees she incurred from her divorce proceedings because she incurred the debt with the intention of discharging it in her Chapter 7 case.

The facts of the case are summarized as follows:  In Bucciarelli, the Debtor filed her Chapter 7 case in December 2007.  In January 2008, she entered into a contract for legal representation in her divorce proceedings.  In addition, she signed a promissory note agreeing to pay her divorce attorney $25,000 for representing her.  The promissory note granted her divorce attorney a lien on her interest in her ex-husband’s 401k.  Her divorce case never actually went to trial.  Her divorce attorney billed her for $35, 625.  When the debtor did not pay her divorce attorney, she was sued in Georgia state court.  The Georgia state court proceeding was stopped because of her active Chapter 7 case.  In response, her divorce attorney filed an adversary proceeding against her to declare the debt nondischargeable.

In Bucciarelli, the Court noted, “To establish that a debt is excepted from discharge under section 523(a)(2)(A), the creditor must prove by a preponderance of evidence that:

(1)  the debtor made a false representation, other than an oral statement respecting the debtor’s financial condition with intent to deceive the creditor;

(2)  the creditor actually relied on the misrepresentation;

(3)  the creditor’s reliance was justifiable; and

(4) the misrepresentation caused a loss to the creditor.”

What sank the debtor in Bucciarelli was the testimony from her “friend.”  Her friend testified under oath that Bucciarelli told her that she incurred the legal fees from her divorce with no intention of ever paying it back.  The “friend” also testified that Bucciarelli told her that the purpose of her bankruptcy was to discharge all obligations arising from the the attorney fees in her divorce case.  The Bankruptcy Court took note that this same friend testified in the Debtor’s favor during the Debtor’s divorce proceeding.

Judgment was entered by the Bankruptcy Court in favor of the divorce attorneys against the Debtor.  The debt was ruled to be nondischargeable.

Other Posts:

1.  Personal Injury Lawsuits Must be Listed in Your Bankruptcy

2.  Can I have a checking account after I file bankruptcy?

3.  What is a discharge in a Chapter 7?

Whether you file a Chapter 13 bankruptcy or a Chapter 7 bankruptcy, you must disclose in writing on your bankruptcy petition any lawsuit or potential lawsuit that you may have against anyone.  If you fail to do so, you will lose your right to recover any money at all from the defendant.

In the case of Donna Barger vs. City of Cartersville GA, Ms. Barger lost her right to recover any money from the City of Cartersville.  The facts of of the case are as follows.  Donna Barger was a personnel  director for the City of Cartersville.  In November 2000, she underwent back surgery for a ruptured disc.  After she was able to return to work, she was demoted.  As a result of the demotion, Ms. Barger had a valid claim against the City of Cartersville for violation of the Family Medical Leave Act, the Americans with Disability Act, and the Age Discrimination in Employment Act.  Since the demotion resulted in a drastic drop in income, Ms. Barger was forced to file Chapter 7 bankruptcy.  She told her bankruptcy attorney and the trustee about the claim at her 341 meeting of creditors.  However, the claim was never listed on her petition.  Furthermore, the case states that “when the trustee asked Barger about the case, she told him that the discrimination suit merely sought reinstatement of her position as Personnel Director.”  The case states that she filed her bankruptcy petition on September 4, 2001 and did not list her discrimination suit as an asset.

In February 2002, Ms. Barger sent the City of Cartersville a copy of her bankruptcy discharge order.  In response, the City of Cartersville moved for summary judgment on the basis of judicial estoppel.  In June 2002, the District court dismissed Barger’s discrimination case by entering summary judgment against her.

Don’t let this happen to you.  When you review your bankruptcy petition, you must make sure you list every asset you have including any potential right to sue any person or any entity.  It is absolutely imperative that you review every single page of your bankruptcy petition before your case is filed.  If you become involved in a lawsuit or have a potential claim after your case is filed, you must contact me as soon as possible and sign an amendment to your bankruptcy petition.

Related post:  Should I tell my Bankruptcy Attorney Everything?

Related post:  How do I protect my assets in a chapter 13 or a chapter 7?

Just because you file a Chapter 13 or a Chapter 7 bankruptcy does not mean that you can’t have a bank account in Georgia.  However, if you have no bank account at all before your case is filed, it is possible that you may have difficulty opening a new one after bankruptcy.  When you file, your case is a matter of public record.  Banks can check to see if you have filed bankruptcy before they allow you to open an account with their institution.

If you have a checking account with a bank that you owe money for a loan, credit card or any other type of debt, I would recommend that  you close that account and open a new one with an institution that you don’t owe any money to before you file.  Under Georgia law, a bank has a right to setoff.  This means that if you have $100 in an account with Rome GA Bank, that bank can take your $100 as soon as you file a bankruptcy if you owe Rome GA Bank any money.  If money has been seized through this type of setoff after the bankruptcy case is filed, we cannot get the money back after you file your case.  The money is gone.

If you decide to open a new bank account before you file, make sure you don’t forget to change any direct deposit orders as well.  Nothing is worse than having your entire paycheck seized by a creditor bank because you forgot to change the order.  Get some type of confirmation from your payroll department that the change order has been received and processed.

I recently met with a client in my Dalton office who works for a large carpet company.  My client completely forgot to close her bank account and open another one with a bank that she owed no money.  After we filed the case, her paycheck was directly deposited into her bank account.  Since she had a credit card with this same bank, they seized a good chunk of money.  Don’t let this happen to you.  Plan carefully before you file.

A person cannot wipe out payroll taxes in Chapter 13 or Chapter 7   Payroll taxes are not considered property of the business.  The business is considered to have held the payroll taxes in trust for the government.  Failure to pay payroll taxes will be treated as a nondischargeable debt.

Using payroll tax money for any purpose other than paying to the IRS is a considered a crime.  There are people who have actually gone to jail for failure to pay payroll taxes to the Internal Revenue Service.    The Internal Revenue Service has published a great article on this subject.  Click here to read it.

I recently met with a client who worked for a small company that owed over 50,000 to the Internal Revenue Service  in payroll taxes.  Since she allowed herself to be listed with the state as an officer of the corporation, she was held liable for the taxes along with the other officers of the corporation.  If she had been a merely an employee of the corporation, she would not have been held liable.  Her mistake was that she allowed to owner to list her as “secretary” of the corporation.  After spending thousands of dollars in attorney fees trying to fight the IRS, the client finally was able to work out a payment schedule with the Internal Revenue.

Whenever a business ever gets to a point where it becomes difficult to pay payroll taxes, it is time to close the business.  Never miss a payroll tax payment.  No business is worth risking jail.

My practice is strictly limited to Chapter 13 and Chapter 7   I do not specialize in tax law.

Other Posts:

1. What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4. Stop Garnishment

5. Stop Foreclosure

The filing of a Chapter 7 bankruptcy is designed to result in a discharge of most of the debts you list on your Chapter 7 bankruptcy schedules.  A discharge is a court order that says you do not have to repay your debts.

However, there are a number of exceptions to a discharge.  For example, debts which may not be discharged in your Chapter 7 are most taxes, child support, alimony, student loans, court ordered fines and restitution, debts obtained through fraud or deception, and personal injury debts caused by driving while intoxicated or taking drugs.  Your Chapter 7 discharge may be denied entirely if you destroy or conceal property; destroy, conceal, or falsify records; or make a false oath.  Creditors cannot request you to pay any debts which have been discharged in your Chapter 7 bankruptcy.

A creditor can challenge a discharge of their debt by filing a Complaint to Determine Dischargeablity.  If the creditor wins the lawsuit against you, the debt not be discharged.

If a creditor who was discharged in your Chapter 7 bankruptcy tries to collect from you after the discharge is granted by the bankruptcy court, you will have a claim against that creditor.

In some situations a debtor may choose to voluntarily pay back a creditor who was discharged in a Chapter 7   I have seen this happen with clients who owe money to a doctor that they really like and want to continue to see after the bankruptcy case is closed.  The repayment of discharged debt must be completely voluntarily on the part of the debtor.

Typically, a debtor will receive a discharge within four months of the filing of the case.  A person may receive a Chapter 7 discharge once every eight years.

In situations where a debtor has obtained a discharge by fraud, the bankruptcy court can order that the discharge be revoked.

You must take a credit counseling class before you file any Chapter 13 or a Chapter 7 bankruptcy. If any person files a Chapter 13 or Chapter 7 bankruptcy without having first completed a United States Trustee certified Credit Counseling Class, the case will be subject to dismissal.  It is absolutely imperative that the class be completed BEFORE the filing date.

I recommend Hummingbird Credit Counseling.  You can find them on the internet at www.hummingbird.org.   The Hummingbird website states that their staff is available to speak with you from 7 am to 11 pm Monday through Friday.  On Saturday and Sunday they are available from 10 am to 6 pm.   Before you begin your session with Hummingbird, it is a good idea to have your paycheck and your monthly bills in front of you.  After you enter your financial information into the website, you will receive an analysis of your situation. After you have read the analysis, you must call a Hummingbird Credit Counselor at 1-800-645-4959 before you can receive your certificate. Since I am a registered user with Hummingbird, you do not need to pay them. We include their cost in your filing cost.

Section 109(h)(1) of the Bankruptcy Code states, “Subject to paragraphs (2) and (3), and notwithstanding any other provision of this section, an individual may not be a debtor under this title unless such individual has, during the 180-day period preceding the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) and individual or group briefing (including a briefing conducted by telephone or on the internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.”

Please take your credit counseling class before you meet with us to sign your bankruptcy petition.  If you are refiling a Chapter 13 and have taken the class within the last 180 days, you will not need to take the class again.

Other posts:  What is Chapter 13?

Other posts:  What is Chapter 7?