Author Archives: Ryan C. Wood

About Ryan C. Wood

Ryan C. Wood is a California attorney practicing primarily in the areas of Bankruptcy Law, Business Law and generally seeking justice for under represented clients in the Bay Area.

Are Debts in a Marital Settlement Agreement Dischargeable in Bankruptcy?

By Ryan C. Wood

In today’s rough economic climate there are more and more people who have a lot of debts and who are also getting divorced.  What happens to that debt in a divorce?  One common scenario is the debt will be addressed in a marital settlement agreement (“MSA”). The MSA may provide for a split of the joint debt with one party responsible for certain joint debt and the other party responsible for the other joint debts.  Keep in mind, the MSA is only an agreement between the two divorcing parties.  Creditors are not bound by the MSA.  They can go after any of the people that are liable for the joint debts.

As with a lot of situations one party may diligently comply with the MSA while the other may not have the funds to pay the debts they are responsible for and be forced to file for bankruptcy protection.  What then happens to the party that was diligently paying his or her debts as required by the MSA?  This depends on what chapter of bankruptcy relief the other party filed for and also whether the debt is considered to be for support.

If the party that defaulted on the joint debts hires a bankruptcy lawyer and files for Chapter 7 bankruptcy protection the joint debts listed in the MSA would be non-dischargeable in bankruptcy pursuant to 11 U.S.C §523(a)(5) or §523(a)(15).  This means that the defaulting party is still responsible for the debt that was considered his or her responsibility pursuant to the MSA even after the bankruptcy case is completed.  This normally does not help the party that was diligently paying his or her debt.  There are a number of problems for this person.  First, the defaulting party’s creditors could now come looking for the other party to pay the defaulted debt.  The diligent party could try to go back to family court to show that the defaulting party was not abiding by the terms of the MSA, however, the second problem is that the defaulting party does not have the funds to pay back the debt.  So the diligent party could potentially end up paying more fees to go back to court and have no resolution to his or her problems.  One way to solve this issue is for the diligent party to file for bankruptcy protection as well if he or she would otherwise qualify for bankruptcy.

If the party that defaulted on the joint debts hires a bankruptcy attorney and files for Chapter 13 bankruptcy protection, then it is very important to categorize the debt correctly.  If the debt is considered to be a support obligation that debt will be non-dischargeable and would need to be paid back 100% in the defaulting party’s Chapter 13 plan.  If the debt is not considered to be a support obligation, but incurred by the debtor the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court record, that debt is dischargeable in a Chapter 13 case as long as the Chapter 13 plan was completed successfully.

So what is considered to be a domestic support obligation?  11 U.S.C. 101(14)(A) provides a complete definition of what a domestic support obligation is.  In a nutshell, a domestic support obligation is a debt owed to your spouse, former spouse, child of the debtor, or the child’s parent for alimony, maintenance, or support established by a separation agreement, divorce decree or court order that is not assigned to a nongovernmental entity unless it was voluntarily assigned by the person receiving the obligation.

The bottom line is if both parties have incurred a lot of debt it may be advisable for them to file a joint bankruptcy petition prior to the divorce to take the debt out of the picture.  This would make the debt a non-issue so the parties can concentrate on other subjects that may be important in their divorce.  Of course, the ability to file a joint bankruptcy case would depend on the circumstances.  You should contact an experienced bankruptcy attorney to analyze your case.

What Happens if I Owe Taxes After I File My Bankruptcy Case?

By Ryan C. Wood

I run across this scenario far too often: finances are strained at home so you decrease your tax withholding on your paycheck.  This choice is really just a temporary Band-Aid though.  You have a little more money to spend on your expenses but you will end up owing the taxing authorities money when it comes time to file your taxes at the end of the year.  If you don’t pay your taxes that are due by April 15 (or whenever taxes are due for that year) you will end up having to pay penalties and interest on top of the taxes owed.  So what happens if you encounter this scenario after you have filed for bankruptcy?

Chapter 7 Bankruptcy

The taxes you owe after you file a Chapter 7 bankruptcy case is your own responsibility.  One thing to point out is that since your Chapter 7 bankruptcy case eliminated all of your eligible dischargeable unsecured debts you should now have some breathing room to change your withholding back to the correct amount.  If you are still struggling to pay your expenses after your Chapter 7 bankruptcy case is filed you need to take a close look at your budget.  That may mean cutting down on a lot of expenses you spend your money on.

Chapter 13 Bankruptcy

All taxes that you owe prior to the filing of your Chapter 13 bankruptcy case are included in your Chapter 13 plan.  All priority unsecured tax debt (generally taxes that are owed in the most recent three years, filed less than two years ago and assessed more than 240 days ago) will be paid 100% in your plan as a priority unsecured debt and all other tax debt will be treated the same as your general unsecured debt.  Please consult bankruptcy lawyers in your jurisdiction regarding your specific circumstances.

The question becomes what happens when you owe taxes after you file your bankruptcy case? First, you need to let your bankruptcy attorney know that you owe taxes.  The Chapter 13 plan is a payment plan for all debts you owe prior to filing for bankruptcy and you really should not be incurring new debt.  It would be impossible for the trustee to administer your Chapter 13 plan if you continue to incur additional debt while you are repaying your old debt.

Many of our clients that are currently in a Chapter 13 bankruptcy cases ask me how they can pay the additional taxes due when they are committing all their disposable income to pay into their Chapter 13 plan. Again, one thing you should do immediately after filing bankruptcy is to change your withholding back to the correct amount so you do not end up owing more taxes in the future.  There are generally two main options to pay the new taxes owed: 1) schedule a payment plan outside your bankruptcy case with the taxing authority and decrease your monthly expenses to afford the monthly payment, and 2) modify your bankruptcy plan to pay the new tax debt for the remainder of your plan.

Under 11 U.S.C. §1305 of the bankruptcy code a proof of claim may be filed for taxes owed to a governmental unit while the bankruptcy case is pending.  This is an exception to the rule indicating only pre-petition debts are allowed in the Chapter 13 bankruptcy plan.  Section 1305 claims have one slight difference to regular pre-petition tax debt: tax penalties are included in the claim amount and the tax debt is subject to interest in the Chapter 13 plan.

If you need to modify your chapter 13 plan to include additional tax debt you should consult with an experienced bankruptcy attorney in your jurisdiction.

What Happens to My Assets When I Convert My Chapter 13 to a Chapter 7 Bankruptcy Case?

By Ryan C. Wood

There could be many reasons why you may convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case.  Maybe you had a significant decrease in income and can no longer afford to remain in a Chapter 13 bankruptcy case.  Maybe the car you were trying to save in your Chapter 13 plan has been totaled in an accident or is no longer running.  Maybe it does not make financial sense to try to keep your house any longer.  Whatever the reasons are you can no longer proceed with your Chapter 13 case and need to convert to a Chapter 7 so that you can still receive a discharge of your debts.  What happens to your assets in this in-between period from when your Chapter 13 bankruptcy case was confirmed to when your case is converted to a Chapter 7 bankruptcy case and why should you care?

All assets that you own at the time your Chapter 13 bankruptcy case is filed are part of the bankruptcy estate.  If you need to convert your case from a Chapter 13 to a Chapter 7, the assets in the bankruptcy estate would consist of everything you still have left from when you initially filed your Chapter 13 bankruptcy case.  See 11 U.S.C. §348. This means that at the time of conversion you would have less assets than when you first filed your Chapter 13 bankruptcy case because some of the assets have depreciated in value (cars have more wear and tear as the years pass) or are no longer in working condition. All new assets that you purchased after your Chapter 13 bankruptcy case was filed would not be part of the bankruptcy estate.  One caveat is that if your bankruptcy case was converted due to bad faith, then the bankruptcy estate would consist of all assets you own at the time the case was converted.  The reason you should consult a bankruptcy lawyer about these rules is because it may affect whether or not your assets could be liquidated when you convert Chapter 7.

One example is if you were involved in a car accident and your car was totaled. The settlement you receive for your personal bodily injuries would not be part of the bankruptcy estate if there is no bad faith alleged.  If the proceeds are not part of the bankruptcy estate then you do not have to worry about the proceeds being liquidated by the Chapter 7 trustee to pay off your creditors.  If there was bad faith then the settlement proceeds could be part of the bankruptcy estate at the time of conversion and would need to be protected using your exemptions, if there is any left.  If you cannot exempt the settlement proceeds, then the settlement proceeds could pay a percentage of the claims of your creditors depending on the unprotected proceeds you receive and how much debt you have.

One thing is clear:  if you think you need to convert your Chapter 13 bankruptcy case to a Chapter 7 bankruptcy case and you have purchased, acquired, or received new assets after your Chapter 13 case was filed, you should consult with a bankruptcy attorney to ensure your assets are protected in the conversion.

Can I Pay the Attorney Fees After I File Bankruptcy?

By Ryan C. Wood

One of the questions I get asked the most during a consultation with a potential client is, “Can I pay some of the attorney fees now and then pay the rest after my bankruptcy case is filed?”  The question is understandable since we are dealing with filing for bankruptcy.  It would not be a stretch to say that most of our clients do not have the funds upfront to pay for the attorney fees and costs.  If they had the money just lying around they probably would not have to file for bankruptcy.  In order to understand the answer you would need to know a little bit about how bankruptcy works.  The answer would also be different depending on whether you are filing a Chapter 7 or Chapter 13 bankruptcy case.

Chapter 7 Bankruptcy Cases

Everyone you owe money to on the day you file for bankruptcy is considered to be a creditor in your bankruptcy petition.  As soon as you file for bankruptcy there is an automatic stay in place that prevents any of your creditors from trying to collect any money from you.  They cannot contact you, send you any mail, or pursue any legal action against you once they receive notice that you have filed for bankruptcy.  This is one of the most powerful tools of bankruptcy.  The automatic stay is why most people file for bankruptcy: to get relief from their debts and their debt collectors.  If you only pay some of the attorney fees prior to your Chapter 7 bankruptcy filing, your Chapter 7 bankruptcy attorney cannot legally ask you to pay the rest after your Chapter 7 bankruptcy case is filed.  The debt you owe your Chapter 7 bankruptcy lawyer is included as part of the general unsecured non-priority debt.  This is the same category your credit card debts, medical bills, personal loans, and other unsecured debts are included in.  These debts will be discharged if you are eligible for a Chapter 7 discharge.  If your bankruptcy attorney tried to collect the debt you owe to him or her, the bankruptcy attorney would be violating the automatic stay and may be sanctioned by the court.  You can always voluntarily repay the debt if you choose to do so but your bankruptcy attorney cannot ask you to repay the debt.  You need to be very wary of the attorneys who promise you that you can pay them after your bankruptcy case is filed.  You need to know your rights and be sure the attorney is not violating the automatic stay.

In addition to the automatic stay, there is a conflict of interest when you only make a partial payment to your attorney prior to the filing of your Chapter 7 bankruptcy case.  The conflict of interest arises because your attorney is now also a creditor in your bankruptcy case.  The Chapter 7 trustee and U.S. trustee looks at cases where you owe money to your attorney very carefully.  In many jurisdictions owing money to Chapter 7 bankruptcy lawyers is prohibited and your bankruptcy attorney will not be able to collect any of the remaining balance after your case is filed.  The Ninth District has ruled that “reasonable fees for post-petition services is not a dischargeable debt and may be collected in the course of the bankruptcy without violating the automatic stay.” In re Sanchez, 241 F.3d 1148 (9th Cir., 2001).  This means that your attorney may charge you for services that they provide you after your bankruptcy case is filed.  It is a good idea to make sure the fees, whether hourly or flat rate, are listed in your contract so you know exactly what you are paying for and when you will be paying for it.

Chapter 13 Bankruptcy Cases

Chapter 13 bankruptcy cases are treated differently than Chapter 7 cases.  Chapter 13 bankruptcy cases are repayments plans.  You will pay a monthly amount as part of your Chapter 13 plan to the Chapter 13 trustee.  Attorney fees here are considered an administrative expense and can be paid as part of the Chapter 13 plan.  Therefore, you would be able to pay partial attorney fees to your bankruptcy attorney and have the remaining balance be paid as part of your Chapter 13 plan.

Even if your attorney does not accept payments after your bankruptcy case is filed (and most would not), you should look for an attorney that would be flexible with their payments PRIOR to filing bankruptcy.  There are some attorneys that allow you to make monthly payments or are very flexible with the payment schedule.  Once you finish paying their fees in full they can help you file your bankruptcy case.  This is perfectly legal and is a recommended for people that are on limited income.  You should consult with these attorneys and ask them if they have flexible payment plans prior to retaining their services to help you with your bankruptcy case.

How Will Filing Bankruptcy Affect My Immigration Status?

By Ryan C. Wood

People from all over the world come to the United States because they want to chase the American dream. What is the American Dream?  It means different things to different people, but mostly it boils down to being successful in their line of work and being financially independent.  When our economy was booming a lot of people achieved this dream.  However, during our current economic downturn a lot of people saw those dreams turn into nightmares.  Houses that were purchased at the height of the real estate boom are now so far underwater that they are now practically worthless.  Speaking to a bankruptcy lawyer to file bankruptcy seems like the only way out of the financial hole. A lot of immigrants have the same question before filing for bankruptcy: “What will filing for bankruptcy do to my immigration status?”

Filing for bankruptcy alone will not affect your immigration status.  You must have committed a crime that is subject to deportation.  Under 8 U.S.C. §1227(a)(2), you could be subject to deportation if you fall into one or more of these categories: if you commit certain crimes of moral turpitude or aggravated felony, if you are convicted of owning controlled substances, if you are convicted of certain firearm offenses, miscellaneous crimes (like espionage, sabotage, treason), crimes of domestic violence, stalking, crimes against children, and trafficking (drug or human).

Crimes of moral turpitude are analyzed on a case by case basis.  A crime of moral turpitude must involve highly reprehensible conduct that was done intentionally, deliberately, willfully, or recklessly.  A crime involving ‘moral turpitude’ involves ‘conduct that shocks the public conscience as being inherently base, vile, or depraved, contrary to the rules of morality and the duties owed between man and man, either one’s fellow man or society in general.  Some crimes that are considered to be a crime of moral turpitude that pertain to people filing for bankruptcy are: writing bad checks with the intent to defraud, crimes of domestic violence, and tax evasion.

There is a long list of crimes that are considered to be aggravated felonies under 8 U.S.C. §1101(a)(43) including murder, rape, and sexual abuse of a minor.  The main ones that may pertain to people filing for bankruptcy are §1101(a)(43)(M)(i) and (ii): fraudulent transaction where the loss to the victim exceeds $10,000 and tax evasion where the loss to the government exceeds $10,000.

What you should take away from this article is that if you have not committed a crime listed above you should not be subject for removal from the United States.  Filing bankruptcy is not a crime period and is not a path to deportation.  Committing a bankruptcy crime (such as lying under penalty of perjury or committing fraud against one of your creditors) may get you deported.  As long as you do not commit a bankruptcy crime you should not have to worry about your immigration status.  If you are unsure if you fall under any of these categories, please consult with a bankruptcy attorney before you go forward.