Bankruptcies continue to skyrocket in the U.S., with a 2009 increase of 32% over the same period in 2008. In California, the increase is a whopping 60% over last year. The fallout from mortgage foreclosures and job losses has hit us particularly hard.
Bankruptcy may be appropriate when loss of or reduced income makes it impossible to pay all your bills. Filing under Chapter 7 of the U.S. Bankruptcy Code will wipe away most of your debts, which can give you a fresh start and opportunity to get back on your feet. Here are some common questions about financial problems and bankruptcy:
We are Registered Domestic Partners in California and need to file bankruptcy. We have joint bank accounts, car loans and mortgage. Can we file a joint petition? No, bankruptcy is an action in federal court, and the federal government does not recognize domestic partnerships or same-sex marriage at this time. You will each need to file an individual bankruptcy petition. Be sure to retain an attorney who is experienced in same-sex bankruptcies, since untangling joint assets and debts can be very complicated.
We have a lot of credit card debt and may want to file bankruptcy. If we do, can the credit card companies take back the items we purchased with the cards? What about our car loan? We want to keep the car. Can we leave it out of the bankruptcy and continue making payments? First, when filing bankruptcy, you must declare all assets and debts. You can’t leave anything out. There are three types of debts: secured (houses, cars, etc.), unsecured priority (e.g., taxes), and unsecured (credit cards, medical bills, etc.). Your credit card debts are probably unsecured, meaning creditors do not have a lien on or hold title to the items you purchased. Certain credit card debt, such as cards from Sears or Home Depot, may have a secured interest or lien on major purchases such as TV’s, kitchen appliances, etc. and the creditor could repossess those items if you can’t continue to make the required payments. Your car loan is also a secured debt, since the creditor keeps title to the car until the loan is paid in full. You may be able to keep the car if you can afford to continue making payments.
My income has dropped by half in the past year, and I can’t make my mortgage payment or property taxes on time. I’m several months behind, and the lender says they are going to foreclose on my house. If I file for bankruptcy, will that stop the foreclosure? How long could I stay in my house if they do foreclose? Unfortunately your mortgage loan is a secured debt, and the lender can foreclose at any time, unless you can bring the payments current and keep them up. Property taxes must be paid, too. The County Assessor’s office can auction off your property if taxes are delinquent for more than 5 years, even if your mortgage is paid up. If your lender forecloses, it is likely that it will be some time before the property is auctioned or sold. There are so many foreclosures right now, the process is often taking many months. You could stay in the house until the sale, but after the sale the new owners will more than likely start an eviction process.
My partner and I split up last year, and she agreed in writing to continue making the mortgage payments so she could live in the house we bought together. I gave her a quit-claim deed to remove my name from the title. Recently, she lost her job and now she is filing for bankruptcy. Will her bankruptcy affect my credit rating?
It could. If your name is still on the mortgage loan, then you and your ex-partner are equally responsible for making the mortgage payments. It doesn’t matter that you took your name off the title. If she can’t make the payments and loses the house in foreclosure, your good credit rating will be harmed. You will need to make the payments yourself until your ex is back on her feet, or try to sell the house for at least the amount of the mortgage loan so you can pay it off now.
I had a lot of medical bills that I put on my credit card. The interest rate goes up every few months, and the payments are so high I can’t pay them. Now the creditor is going to file a court action against me so they can garnish my wages. How much can they take out of my paycheck? Could I file bankruptcy to stop the court action? A creditor can garnish 25% of your paycheck. You can file bankruptcy and stop the court proceeding; or if the action has already been filed and a judgment entered, it will stop the garnishment of your wages. In most cases, the judgment will be discharged in bankruptcy.
I owe the IRS about $20,000 in taxes from several years ago. I can’t afford to pay it any time soon. Can I file bankruptcy to get rid of this debt? First, please be aware that there are several kinds of debts that can’t usually be discharged in a bankruptcy. Most federal taxes and student loans, and child support or alimony are some examples. Sometimes, if the taxes owed to the IRS are more than 3 years old, and you have been timely in filing and paying all taxes since then, it may be possible to discharge the old tax bill in bankruptcy. This is a complex issue, though and you should retain an attorney who can advise you on what is possible in your particular situation.
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This article is part of an ongoing series of articles pertaining to legal issues in the LGBT community. Previous articles can be viewed at www.heritagelegal.com. This information is intended for general information purposes only, and is not intended to provide legal advice. Christopher Heritage is an attorney in Palm Springs, CA, who focuses on LGBT estate planning, domestic partnerships, same-sex marriage, probate, trust administration, and consumer bankruptcy. He welcomes questions and comments, and can be contacted at 760.325.2020, or by email: chris@heritagelegal.com