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Palm Springs Law Blog

Wednesday, March 4, 2015

Refreshing Your Financial Future

The U.S. Supreme Court’s DOMA decision last year opened up over a thousand  marital benefits and obligations never before available to people in legal same-sex marriages. Among these is the right to file a joint bankruptcy with one’s spouse, just as straight married persons have always been able to do.

 

Let’s take a quick look at financial issues, bankruptcy, and how they affect same-sex couples:

 

In California, large numbers of bankruptcies were filed during the “Great Recession” of the past few years. Loss of assets in the financial market, loss of jobs, and underwater mortgages were the primary reasons. Now, as the economy improves, there is a substantial decline in bankruptcies, and prospects are good for most people. But, even for people who have managed their finances well over the years, a sudden job loss, major illness, accident, or failure of a small business can tip the balance and cause catastrophic money problems.

 

People with financial difficulties may start falling behind on car payments, credit cards, mortgages. Creditors start hounding them. Lawsuits may be filed against them to recover monies owed. When the courts issue default judgments, liens might be placed on their possessions, or salaries may be garnished by the creditors. Once debtors are trapped in this whirlpool of actions, it is likely that bankruptcy is the best way out. It is far too late to negotiate a way out of debt.

 

Bankruptcy can resolve your creditor issues, and give you a fresh start. If lawsuits are pending, foreclosures are imminent, or wages are being garnished, it is usually possible to stop these actions if a bankruptcy petition is filed. There are two types of bankruptcy to consider, and both can help rebuild your finances:

 

Chapter 7 gives you the chance to clear away most debts, through a “discharge” of debts by the bankruptcy court. Let’s say you have substantial debt, and not enough income to pay it off over a reasonable period of time. You have few or no assets (such as lots of equity in a home, multiple cars, large stock market investments, etc.) that the bankruptcy trustee can sell to pay off the creditors. Of course you may retain certain necessities (home, car, bank account, etc.) if they fall within the dollar limits of the exemptions allowed by the state or federal government. If you qualify, you file a Chapter 7 bankruptcy petition, and it takes about 4 to 6 months to discharge your debts. After that, you have a clean slate for the future.

 

Chapter 13 gives you the opportunity to continue paying off most or all debts over a 3 or 5 year period, under the protection of the bankruptcy court. In this case, you have sufficient steady income so you can create a plan to pay down the debts. The plan is administered by the bankruptcy trustee and you pay the trustee an agreed-upon amount of money each month. The funds are distributed to the approved creditors, and at the end of the plan period, you are essentially debt-free.

 

In both types of bankruptcy, certain debts such as most recent back taxes, student loans, alimony and child support, and some others are not dischargeable.

 

What should same-sex couples consider if they are thinking of bankruptcy? It is important to remember that some states don’t recognize same-sex marriage at all, but the federal rule allowing joint bankruptcy filing applies to legally married couples in every state. In states that do recognize same-sex marriage, the rule may also apply to registered domestic partners. California is a community property state, and registered partners have nearly all the same rights and obligations as married spouses. Joint petitions are allowed for both married and registered same-sex couples. But the rule does not apply to other domestic partners, even though they may have shared finances and property, and been together for many years.

 

How do you decide between filing a joint petition and individual petition? It can save time and money to file a joint petition. A single filing fee, lower attorney fees, one hearing instead of two, and other reasons make it an advantage over filing individual petitions. On the other hand, in a Chapter 7, being married could sometimes be a disadvantage. Whether filing a joint or individual bankruptcy, if both spouses have income and property, assets are totaled and there may be difficulty meeting the means test in either type of petition.

 

What if you are not married or registered? You can’t file a joint petition, but one or both of you can file individually. Joint debts will be eliminated for both partners if both file petitions. They will be discharged for only the personal liability of one partner, if only one files. The other partner will remain liable for the joint debts after the petitioner’s case is closed.

 

Whether you are married, registered or single, be sure to consult an attorney about your particular situation and the best way to file for bankruptcy. Doing it right will mean a new and refreshing financial future.

 

 




The lawyers at Heritage Legal, PC, assist clients throughout Palm Springs, Riverside County, San Diego County, San Bernardino County and the surrounding area.



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