Wednesday, March 19, 2008

Bankruptcy Joint Debts and Property

If I am discharged for a joint debt, what happens to the cosigner?

Your cosigner's liability for the debt is not effected by your discharge.
Cosigners are almost always joint and severally liable. This means the creditor can collect the entire debt from any person who has signed for the debt. If one of the signers receives a discharge, the creditor will still be able to collect the entire debt (plus interest, attorneys fees and collection charges, if the contract provides) from the other signers.

There has been a firm of collection attorneys aggressively pursuing me for a debt that was given to my ex-husband according to the terms of our divorce. Why are they coming after me when they know it's his debt?

The division of debt in the divorce decree affects only you and your husband. If your husband does not pay the bill, the creditor may come after you for the entire debt. You may have an action against your husband for his violation of the court order, but you may be no more successful in collecting from him may be no better than the creditor who has apparently decided that you are a better target.

Can I protect a cosigner?

If you file Chapter 13, a co-debtor stay automatically goes into effect prohibiting creditors from collecting consumer debt from co-debtors. In order to maintain this protection, your Chapter 13 plan must provide for payment of the entire debt and interest.

My husband and I divorced nearly a year ago and he was supposed to take over the credit cards part of the divorce agreement but he later found out that the bills were too much. I am unable to pay back the loans and credit cards. I have tried several times during the year to get him to go for bankruptcy but he will not do it. Can I do it and settle the debts for the final time?

Yes, you can file and discharge (or cancel) your debt under either Chapter 7 or Chapter 13 bankruptcy. However, if you and your husband are divorced, you cannot file bankruptcy together--each of you would have to file separately. If you ex-husband files, his debt would be eliminated, but creditors would still be able to pursue collection against you. You, of course, could file and seek to discharge your liability for those debts.

My wife and I are getting divorced but we have not gone through the process yet and I was wondering if I file for bankruptcy for myself will it affect her if our divorce has not been finalized yet?

Bankruptcy filed by one spouse can affect the other spouse if there are community debts or community assets. In Arizona, assets earned by either party during marriage are property of the marital community.

Will my filing Chapter 7 personal bankruptcy effect my spouse's or my own I.R.A. accounts, cash value life insurance accounts, or jointly owned land?

In general, your filing bankruptcy will not effect your spouse's property. In Chapter 7, the Trustee will be able to take property which you own if it is not exempt. The Trustee cannot take property of your spouse even if it is not exempt.

Unfortunately, the answer is not so easy if you own propety with someone else, including your spouse. Whether the property may take only your interest in the property, or all of the peroperty depends on the nature of your ownership in it.

Jointly owned property. If you own property jointly with anyone, including your spouse, the Trustee may take your share of the property. The Trustee cannot take the joint owner's share. However, dividing the property between the joint owner and the Trustee may require that the property be sold.

Community property. Community property is property which is acquired through the earnings of you or your spouse during marriage. It can be taken by the Trustee and used to pay debts for which the community is liable. Whether the community is liable depends upon state law.

The most common property owned jointly or as community property is a home. Since Arizona has a relatively generous homestead exemption of $150,000 , we do not often have to deal with the problem of the Trustee seeking to take a home.

You should be able to keep your SEP-IRA & 401K plans. In Arizona, IRAs are exempt--except for deposits made within 6 months before filing--and ERISA plans (which 401k and other retirement plans would ordinarily be) are also protected--if the documents that created them contain properly drafted spendthrift protection.

In Arizona, the cash value in your life insurance is exempt up to $20,000, if you name the proper beneficiaries and meet the other requirements to claim the exemption.

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