Will My Bankruptcy Affect My Spouse’s Credit

A credit report should reveal if you and your spouse are jointly liable on any debts.  At least theoretically, your bankruptcy will not affect the credit score of a spouse who does not file with you.  It is important to remember that your spouse is not liable for your debts unless there was a written obligation such as a joint credit card application or a joint loan.  An easy way to find out, although not 100% effective, is to look at the monthly bill when it comes in.  Credit card companies and banks cannot put someone’s name on a bill unless they are jointly liable.  If only your name is on the charge account, then your spouse is not liable.  If both of your names are on the monthly statement from the car lender, then you are both liable.  Your bankruptcy should not show up on your spouse’s credit report or affect your spouse’s credit score.  Check your credit reports at the three credit agencies after your bankruptcy is filed.  As always, an experienced bankruptcy lawyer can help you analyze the big picture and guide you through these financial considerations.

 

Supreme Court Update on Fraud

Since the Bankruptcy Reform Act of 2005, most lawyers and judges in the bankruptcy system have been of the opinion that “fraud” meant an actual fraud, an ill will or an intention to do harm.  The United States Supreme Court recently ruled in Husky International vs. Ritz that the standard was not that stringent.  In the Husky case Ritz took assets from his business that could have been used to pay Husky, moving them to other businesses that he owned.  The Bankruptcy Court and then the Court of Appeals found that those transfers were not “actual fraud.”  The United States Supreme Court in reversing declared that fraud includes fraudulent conveyance schemes even when there is no false representation.  This decision will make it easier for bankruptcy trustees and bankruptcy creditors to pursue debtors who try to unfairly and unjustly use the system to their benefit.

Digital Files as Tools of the Trade

Every state as well as federal law allows an exemption for tools of the trade.  By exemption, of course, we mean assets that cannot be taken by the bankruptcy trustee.  “Tools of the Trade” is a term used to define the exemption of tools, implements, equipment, and means of production regularly and reasonably necessary to carry on a person’s business.  Such a wide definition gives great latitude to the person filing bankruptcy.  In past years tools of the trade disputes coming before the bankruptcy court usually involving hard items such as hand tools or saws, plows, rakes and even livestock.  But in more recent days people are making all or part of their business through the use of digital and media devices.  A recent decision from the United States District Court for the District of Kansas affirmed a Bankruptcy Court decision that digital photographs and a website can be claimed as tools of the trade.  Of course the person in bankruptcy must prove that they are using the digital media as a means of production to seek a livelihood.  Social media accounts such as Facebook or Twitter may also be ruled as tools of the trade under this precedent.  It is indeed a new world.   In re: MacMillan (D.Kan. Dec. 11, 2015).

 

Bankruptcy Reform At Ten Years

On October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act slowed bankruptcy filings to a trickle.  From January through October of 2005 there were over two million bankruptcies filed nationwide.  Many people unwisely filed for fear that they would never be able to file again once the law went into effect.  Word was out on the internet that you could not file bankruptcy or could not file bankruptcy on credit cards and all sorts of other bad information. 

There is no question but that bankruptcy filings are down significantly from 2005.  The high mark was the year 2010 when nationwide filings were almost 1.6 million. The projected filings for the year 2015 are 830,000.   Many people can argue whether the bankruptcy reform legislation was good or bad for the country or good or bad for the economy.  The fact is beyond dispute that bankruptcy reform made filing a major impact on debt relief. 

Will My Bankruptcy Be Published in the Paper?

This last week the rapper known as ‘50 Cent’ filed for bankruptcy and the news was all over the internet and the papers.   All court filings in this country with very limited exceptions are open to the public.  For that reason all bankruptcy filings are open to the public.  However, except for very important and well known celebrities and athletes, it is unusual for any bankruptcy petition to be published in the local newspaper.  Some clients at Checkett & Pauly confuse the foreclosure notices that are published in the local paper with bankruptcy notices.  Foreclosure notices have to be published as a matter of law.  Bankruptcy petitions are only published if the filing is somehow newsworthy.  While it is always possible, the chances of your bankruptcy or any other person’s bankruptcy hitting the internet or the newspaper is highly unlikely. 

Underwater Mortgages

There has been a great deal of talk since the start of the Great Recession in 2008 about underwater mortgages, meaning mortgages for which there is no collateral.  For example, Mr. and Mrs. Jones own a home worth $100,000.00 and have a first mortgage of $110,000.00 and second mortgage of $40,000.00.  The second mortgage of $40,000.00 is often referred to as “underwater.”    The United States Supreme Court in 1992 held that a chapter 7 debtor could not “strip down” a partially underwater mortgage.  A number of bankruptcy observers thought, and some federal courts agreed, that a bankruptcy debtor could strip off a fully underwater mortgage, such as the $40,000.00 referenced in this blog post.  However, on June 1, 2015, the United States Supreme Court in Bank of America, N.A. vs. Caulkett held that in chapter 7 no mortgage can be stripped off.  This ruling leaves bankruptcy debtors with the unhappy alternative of paying mortgages in full or simply walking away from the home.  While mortgage modification is possible, the bank process is often long and disappointing.  There still remains the open question of whether a totally underwater mortgage can be stripped off in chapter 13.  Checkett & Pauly has filed many chapter 13 cases over the years that have stripped off underwater mortgages in chapter 13.  Please call our office for a free appointment if you would like to discuss that alternative. 

The Rich and Famous Sent to Prison for Bankruptcy Crimes

It is very important that anyone contemplating bankruptcy understand that fraud and perjury are bankruptcy crimes that are taken very seriously. Fraudulently concealing debts or assets, forgery, intentional misrepresentations—these are all bankruptcy crimes. Very recently, Teresa Giudice, a cast member of The Real Housewives of New Jersey was sentenced and jailed for bankruptcy crimes. She turned herself in and has started her 15-month jail term.

Other famous people who have done hard time for bankruptcy crimes are:

  • Lenny Dykstra, famous baseball player and member of the World Champion New York Mets. He was a better baseball player than a businessman and soon found all of his money was gone and had to file bankruptcy. The bigger problem was that instead of getting a fresh start he sold items belonging to the bankruptcy estate, destroyed and hid other assets, and wound up in federal prison.
  • Randy Jackson, the youngest member of the Jackson 5, pleaded guilty to failing to disclose a Chevrolet Suburban.
  • Rowe Messner was a contractor specializing in building churches, but was famously married to televangelist Tammy Faye Bakker. He ended up in federal prison for concealing assets.
  • Peter Pocklington was the former owner of the Edmonton Oilers, of the National Hockey League. He was perhaps more famous for trading Wayne Gretzky to the Los Angeles Kings. Mr. Pocklington fell onto hard times and filed bankruptcy, but not before committing fraud and perjury, ultimately being sentenced to prison.

Bankruptcy is an option to consider for all honest people who cannot pay their debts and want a fresh start. Be warned, however, there are dire consequences for those who try to defraud the system and perjure themselves in bankruptcy court. Checkett & Pauly is always ready to help an honest person who has fallen on hard times, but we have no interest whatsoever in representing the dishonest or fraudulent.

 

Cancelled Debts Remain on Credit Reports

One of the key purposes of bankruptcy is a fresh start. That is, all of your bills are wiped out once and for all. The lenders and credit reporting agencies are required to note your bankruptcy discharge (which essentially acts like a restraining order against collection) on your credit report. The New York Times recently reported that many of the large lenders are violating federal bankruptcy law by ignoring the injunction. When then happens, someone who wants their fresh start is unable to complete the loan process because the old debt shows up on credit reports. This unlawful practice has affected several Checkett & Pauly clients. However, we are always there to push back and force the lender or credit reporting agency to comply with the bankruptcy discharge and correct the credit report or face the consequences. You must be sure to stand up for yourself and ask for our help if a creditor breaks the law.