Client FAQs - Will Filing for Bankruptcy Affect My Spouse?

There are really two sides to this question. In bankruptcy, we're mainly concerned about two things: your debts and your property.

DEBTS

In Ohio, when one spouse files it does not affect credit of the non-filing spouse. As long as the non-filing spouse has not co-signed or otherwise used the credit of the filing spouse, they will not be held liable for the debts of the filing spouse.

One thing to keep in mind, however, is the situation in which both spouses have co-signed for a loan or are jointly liable for a debt. In that circumstance, one spouse's bankruptcy filing does not relieve the other of liability for the debt. The non-filing spouse is fully liable. One caveat to this is if the debtor is filing a Chapter 13 bankruptcy and is re-paying a consumer debt in full through their plan. In this circumstance, the bankruptcy code has a "co-debtor stay" in effect that protects the co-debtor from the creditor (11 U.S.C. 1301).

PROPERTY

As a general rule, any property that is solely in the name of the non-filing spouse cannot be touched by the bankruptcy trustee. One thing to keep in mind, however, is the concept of fraudulent transfers. In Ohio, the trustee can look back up to four years at any property the debtor has transferred out of his or her name. If the debtor transferred property out of his or her name to the non-filing spouse, the trustee may be able to reclaim that property from the spouse.

Also, joint property can be an issue if there is equity in it. For example, if a couple owns a home worth $100,000 that has no lien on it, the trustee may end up selling the house. The debtor owns a 50% interest ($50,000), but Ohio bankruptcy exemptions only cover $21,625 worth of equity. The trustee could then sell the house, give the non-filing spouse the value of their interest, give the debtor the value of their exemption, and give the rest to creditors. This is the sort of situation that can result in the loss of a home, a car or any other jointly titled property. An experienced bankruptcy attorney should be able to point out these potential pifalls before you file your case.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.

Red Alert! Want to Do A Bankruptcy Yourself? Find Out What SOME Trustees Are Doing That Could Make You Lose Your Home

Here's a quick hitter about the perils of doing a bankruptcy yourself, or hiring an attorney who isn't an expert in the field. Imagine this situation: You own a home, it has a mortgage, the payments are current and there is little or no equity. You want to keep the house. If you read my previous post, you'd think that there would be nothing in the way of you keeping your house. Well, there's something that SOME Chapter 7 Trustees are doing that could cause you to lose your house, even in this situation.

In Ohio, a mortgage is required to be signed by the borrower and be attested to by two witnesses and a notary public. If it's not, then it can be invalidated. If you think this is good news for your bankruptcy, then you're wrong. In theory, if the witnesses or the notary were not present when the mortgage was signed, then it is not valid and the property is not secured. What this means for your bankruptcy is that the property would be all equity. If it is worth more than you can exempt, the trustee can sell the property. The practical effect is that the debtor/borrower and the lender (both of whom entered into their agreement in good faith) both get screwed in favor of unsecured creditors like credit card companies and collection agencies. As a note, it is my opinion that this kind of action by any trustee is immoral and unconscionable. However, my opinion aside, it sometimes happens.

To be fair, most trustees DO NOT pursue this avenue, but there are some that do. And if you run into one, you'd better be prepared to answer his or her questions about it. When I know I'm going to have a hearing with one of these trustees, I prepare my clients. To be fair, most clients can't remember who was there and who wasn't. In this case, there is really nothing the trustee can do to invalidate the mortgage. But it's just another pitfall and another reason you should hire a qualified professional to handle your case.

For more information on Chapter 7 and Chapter 13, visit my website at www.OhioBankruptcyRelief.com. If you're in Northeast Ohio, call me at 330-605-3508 for a free bankruptcy consultation.

Client FAQs: Will I lose my home in bankruptcy?

One of the most frequent concerns people have when they come in to my office is whether or not they will lose their home in bankruptcy. Oftentimes, a person's home is more than just a piece of property. It is the realization of the American Dream. It is a place where memories are made and families are raised. It symbolized achievement and ownership in a community or neighborhood. People are right to ask the question "Will I lose my home in bankruptcy?"

With any question, of course, the answer depends on the circumstances. Clients should realize that with any property they have, their bankruptcy trustee is concerned with one thing, equity. The trustee's job is to find any property that is not exempt, liquidate it, and use the money to pay off creditors. In most Chapter 7 cases, there is nothing for the trustee to sell. These are called "no-asset" cases. Simply put, if there is no equity in your home (a common situation these days), then your bankruptcy trustee will not have any interest in it. But even if you do have equity, you may still be safe. The Ohio bankruptcy exemptions for homes (the "homestead exemption") allows any person to exempt $21,625 of equity in their primary residence. Double this for joint owners ($43,250). Even if you have more than this, your trustee may not pursue your property if they will not realize any money when taking into account the costs of sale.

If you have too much equity in your home, there is one of two ways this is resolved. Either the trustee will sell your property (and pay you the value of your exemption), or you can pay the trustee money to keep the property (in an amount agreed upon between the trustee and your attorney). If neither of these is an option, you should consider a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, you do not lose the property, although the nonexempt portion of your equity is taken into account for purposes of your plan payment.

Finally, you should make sure that your mortgage payments are current, or that you have arrangements with your mortgage company, if you want to keep the home. If it is behind, you may want to consider a Chapter 13 bankruptcy to get it caught up or stop a foreclosure. Also, you can sometimes get rid of, or "strip", a second mortgage if you complete your Chapter 13 Plan and get a discharge.

For more information on Chapter 7 and Chapter 13, visit my website at http://www.ohiobankruptcyrelief.com/.