Must a Husband and Wife File a Joint Bankruptcy. Part II

In a prior post we pointed out the while a husband and wife may file a joint Chapter 7 Bankruptcy or a joint Chapter 13 Bankruptcy, the United States Bankruptcy Code also allows either spouse to file an individual bankruptcy. However, in many cases it would make no sense for a married couple to file an individual bankruptcy, because either the debts are in joint names or each party has substantial debts in his or her own name, and by filing a joint bankruptcy both parties can receive a discharge from their debts.

One reason a couple may not want to file a joint bankruptcy though occurs when the parties have a high enough income that the bankruptcy law will require them to file a Chapter 13 bankruptcy, but they are not that much past the limit. In a Chapter 13 bankruptcy the debtor is required to make monthly payments over a plan period which usually lasts for five years. How large the payments will be is usually based on how much disposable income the household has available (the formula contained in the Bankruptcy Code known as the "means test"), and in the majority of cases the total plan payments add up to substantially less than the amount of debt that the Bankruptcy Court will discharge.

In figuring the amount of income that is available the law allows certain deductions for household expenses, and one of the allowed expenses is the debt that the nonfiling spouse will have to pay off over the next five years. In other words in many cases, if one spouse stays out of the bankruptcy the plan payments will go down by the debts payments that spouse has to make over the next sixty months. In some cases the total household debt payments will stay the same either way, and the spouse who does not file will avoid having a bankruptcy on their credit report. Or after allowing the deduction for non discharged household debts, the spouse filing bankruptcy will end up qualifying to do a Chapter 7 bankruptcy rather than a Chapter 13 bankruptcy.

Of course no one will know whether either of these advantages will apply in their case until their bankruptcy lawyer performs a rather complication to determine how the means test will work in their particular case. The bankruptcy lawyer is required to compute the means test in every individual bankruptcy though, and he or she should be able to advise the debtors before they file whether or not a husband and wife is better off filing a joint bankruptcy

Home Foreclosures Are Taking Longer

As an Illinois Bankruptcy Lawyer I have definitely noticed that mortgage companies have not been moving nearly as fast as they use to, when they foreclose on home.

The reason for this slow down is that with the burst of the housing bubble a huge number of homeowners have fallen behind in their mortgage payments and the volume of problem loans to deal with has slowed down those who process the collection actions. Banks of course lose money on most foreclosures, and while you would never realize it from dealing with their collection departments or their loss mitigation departments financial institutions would prefer to avoid a foreclosure if possible. Thus it is not surprising that with so many loans going bad, which are costing the mortgage companies tremendous losses, the lenders in many cases are postponing court action.

Under Illinois law a foreclosure sale cannot take place for at least 210 days after the bank serves the homeowner with a summons for the foreclosure law suit. After the sale date the mortgage company needs to obtain a possession order from the court, and the possession order allows the owners to remain in their home for another 30 days. The service of the summons only occurs after the mortgage holder files a foreclosure suit in court. Up until the last couple of years my advice as a bankruptcy lawyer has been to assume that the bank will file the lawsuit after the homeowner has missed three monthly mortgage payments. Thus we would figure a homeowner had about a year after he or she stopped making payments before they would have to leave the home.

For most homeowners this is no longer the case though, and I am encountering numerous individuals who are still in their homes well over a year after they have quit making mortgage payments. In fact according to the Wall Street Journal mortgage companies have not yet foreclosed on a quarter of homeowners who have gone for two years without making a mortgage payment.

Must a Husband and Wife File A Joint Bankruptcy

As with tax returns married couples have the option of filing a joint bankruptcy petition, and when they file a joint bankruptcy both husband and wife will receive a discharge of their debts. However, as their bankruptcy attorney will point out to them there is no requirement that they file a joint bankruptcy, and a married person is free to file an individual bankruptcy.

Whether a married couple should file a joint bankruptcy is another question, and before offering advice on this point the bankruptcy attorney will have to look at the circumstances in each case. When the debts are all in joint names the answer is pretty obvious that a joint bankruptcy will work better. If one spouse files the bankruptcy court will discharge his or her liability for the debts, but the creditor will be free to collect the debt against the other spouse who does not receive a bankruptcy discharge. Of course the each spouse could file their own individual bankruptcy, but then the family will incur the extra expense of two separate legal proceedings.

One exception to this principal might be if the only significant joint debt is a mortgage in default, and either the husband or wife wishes to file a Chapter 13 bankruptcy to stop the foreclosure. The spouse filing can payback the arrearage through a bankruptcy plan, and at the end of the term of the plan the bankruptcy court will fully reinstate the mortgage. This can backfire however, if unexpected circumstances keep the debtor from making the required payments. In this case the Chapter 13 bankruptcy will fail, and the foreclosure will proceed. When this happens the debtor will frequently convert the Chapter 13 bankruptcy to a Chapter 7, which will discharge the debt that arises from any deficiency in the foreclosure sale. However, the mortgage company will still be able to pursue the other spouse to collect the deficiency unless that person files his own individual bankruptcy.

The other simple situation that calls for an individual petition is when all the debts are in the name of either the husband or the wife. In that case there is no benefit to the other spouse filing bankruptcy, and the one with the debts should file an individual Chapter 7 Bankruptcy or Chapter 13 bankruptcy. The question becomes more complicated though when the spouses have separate debts.

Will My Employer Know That I Filed Bankruptcy

Some people hesitate to file a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy, because they are concerned that their employer will discover that they have filed a bankruptcy petition, and this action will prove harmful to their career. Sometimes they will even put off visiting a bankruptcy lawyer to consult upon the benefits of the action.

When individuals bring up this concern, their bankruptcy lawyer will usually point out that an employer would be breaking the law, if they discriminated against one of their workers who filed either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. This information puts most people at ease; however, some individuals to not find that this explanation offers enough comfort. They might worry that once their boss learns about the filing, he may still want to fire them, and he will look for some other explanation for the termination that will disguise the true motive. Or the concerned individual might work for a small company, who may not retain an employment lawyer, whom they can consult before they decide to let the employee go, and the management might not even realize they are breaking the law.

It does not seem likely that this penalization with a disguised motive would actually occur, but it is also hard to be positive that it could never happen. What the bankruptcy lawyer can offer as additional assurance though, is the fact that the debtor’s employer is unlikely to know that a member of his staff has filed a bankruptcy. The court does not notify an individual’s place of employment, when he or she files bankruptcy, and it is unlikely the company will discover the information through other sources.

One exception of course is when an employer is already garnishing a worker’s wages because of a court judgement against the employee. In that case the bankruptcy lawyer will have to notify the payroll department that the worker has filed bankruptcy in order to stop the garnishment. However, this would be a case, where the employer will already know that the worker has financial problems, and if anything the company should be happy that it no longer needs to go through the extra paperwork that the garnishment requires.

One final note on this subject is that bankruptcy is a public record, and if someone wanted to know, if you filed a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy they could go to the court and check the records. However, finding those records is not an easy task, and it is hard to believe that anyone would make that effort unless they already strongly suspected the bankruptcy. Certainly a well advised employer would not check for his employee’s bankruptcy filing for the simple reason that such an effort on a company’s part could be taken as circumstantial evidence that they intended to break the law by penalizing the bankrupt employee.

Medical Bankruptcy

 Health problems often lead to financial problems, and most of us have friends or  relatives who lost everything when they became ill. Besides the doctor and hospital bills a number of other costs can accompany illness, such as lost income when one is unable to work, and the exorbitant premiums insurance companies will charge for health coverage after an individual becomes sick. Studies indicate that over half of all individual bankruptcy filings in the United States are the result of medical setbacks, and everyone, who listened to the Health Care Reform debates earlier this year is aware that the routine acceptance in this country of individuals falling into poverty when they become ill has become a national scandal.


People who find themselves falling into debt as a result of illness often say they want to file “medical bankruptcy” with the general idea that the procedure will free them of various doctor and hospital charges, which they do not have the income to pay, and it is not surprising that the term medical bankruptcy has come into everyday use.



However, as a bankruptcy lawyer will tell you the bankruptcy code does not contain the term “medical bankruptcy,” and people who are filing bankruptcy because of illness face the same rules as everyone else. This includes the requirement that they participate in credit counseling programs designed to help people who have trouble keeping track of their credit card debt, and to me it seems rather insulting to subject a person who has just gone through a $40,000.00 operation to lectures that imply, that if she had just been a little more careful with her charge cards all her problems would evaporate with the dew as soon as the sun comes out.



There is some movement in Congress to change this, but it does not appear to be moving very quickly. The Medical Bankruptcy Fairness Act was introduced on February 4, 2009.  However, nineteen months later the bill does not look like it will become law anytime soon. The Act would provide such relief as allowing an individual filing medical bankruptcy to keep a  home worth up to $250,000 rather than having the home taken away to pay his medical bills.

The proposal would also remove the requirement for many bankruptcy filers that they file a Chapter 13 bankruptcy, which will require him to commit his entire disposable income for a five year period toward paying his medical debt before he can receive a discharge.

Keeping Your Car In Bankruptcy



One of the most important questions for many people, when they consult with a bankruptcy lawyer is whether they will lose their car, if they file a bankruptcy. This is not surprising, since our country has for the most part failed to maintain public transportation at a level that which can offer reasonable services in most cases, and owning a vehicle has become a necessity of life. Most workers in fact have no choice but to drive to work, and if the bankruptcy court were to take away a person’s car he or she would be unable to earn a living.

In most cases individuals, who file bankruptcy, do keep their cars; however, this is not an absolute rule. In a Chapter 13 bankruptcy the bankruptcy plan will usually provide for the debtor’s payments to satisfy vehicle loans, and the debtors will then keep the cars. In a Chapter 7 bankruptcy, the trustee can sell a debtor’s vehicle and apply the proceeds to pay the creditors, but this will only happen, if the trustee can sell the car for more than the value of the exemption, which the law allows.

Thus it is important for the bankruptcy lawyer to examine what is going to happen under each set of circumstances, and give appropriate advice to the clients.

Under Illinois Bankruptcy Law every individual is entitled to a $2,400.00 exemption on one vehicle. Everyone is also entitled to a $4,000.00 general personal property exemption, which the debtor can apply to her automobile, if she does not need this exemption to protect other property. Thus a person can exempt a car worth up to $6,400.00.

In figuring out how much of an exemption is needed to retain an automobile, you only need to consider the equity in the vehicle. Thus a debtor, who owns a car worth $20,000.00, but who owes $18,000.00 on the car loan used to purchase the vehicle, only has to worry about the $2,000.00 value of his or her interest in the car, and the $2,400.00 vehicle exemption will be sufficient to keep the vehicle.

When a married couple files a joint Chapter 7 Bankruptcy they may be able to use both of their exemptions on a single vehicle and retain an automobile worth $12,800.00. In order to make this election however, they would have to own the car jointly. Unfortunately, even in the enlightened twenty-first century the American tradition of titling the family car in the husband’s name has not totally died out, and following this custom sometimes makes it impossible for a couple to keep the automobile.

Is There Any Such Thing as Estate Taxes

Nine years ago Congress provided for a gradual phase out of Federal Estate Taxes. The idea was  to increase the estate tax exemption from the $1,000,000 available at the time the law passed to  3,500,000 in 2009, and to create an unlimited exemption, so that estate taxes would disappear in 2010.

The problem is that congress wanted to tell their constituents that the change would not cost the government any revenue, and in order to fall within the voodoo economics formula, which Congress follows in making such claims, our lawmakers included a sunset provision that would kick in after 10 years. In other words in 2011 the estate tax would return to the time space continuum from which it sprang, and the exemption would decrease to $1,000,000 amount that existed before Congress passed the law.

At the time everyone assumed that Congress would make the abolition of estate taxes permanent long before the sunset provision would take affect. However, as of September 2010 Congress has still done nothing, and the Federal Estate Tax burden is scheduled to jump for anyone dying on or after January 1, 2011