BK Clarification Needed In WA

[IOEveryone]

I had a failed business I closed in '09 and had to move to another state to find stable employment. In doing so, I lost the fight in short selling my home (in the previous state) and it was eventually foreclosed upon 3 months ago.

I have approximately $148k in unsecured debt (HELOC, 2 lines of credit, and 2 credit cards). I stopped paying on the HELOC in May, '08 while the home was going through the short sale. I've recently (August, '10) lost my job and discontinued paying most (all but one line of credit) of the other unsecured debt as of November '10.

Awhile back (more than a year), my business attorney shared that I could never file Ch. 7 as long as I made over the state median income (at the time I was the only income for our household). He indicated that while I had a job making over that specified amount, a Ch. 13 was my only option. Armed with that information, I just kept making payments (all of the debt was to keep the business afloat during bad times).

After recieving my rif (reduction in force), another attorney advised me that the Trustee would examine the past six months of my income and therefore advised that I hold off on accepting new work until after that six months so that I can file. I've chosen not to continue to pay for that individuals advice as I felt (in many instances) that he wasn't providing great advice.

Based on what little I know, I have a number of questions for the Forum Experts:

1). I have been unemployed now for six months. If I were to file AND then get a job offer (by the way, none have come so I haven't turned anything away), will the Trustee take that into account? Do I have to be unemployed during the 4-6 month time a BK takes to mature as well?

2). The debt listed above is all under my name with the exception of the one line of credit which is co-signed with my wife. Our business plan has always been that all liabilities were under my name protecting the family (this was all recommended by an attorney years ago when all of the LLC's were created and filed). In a last ditch effort to save our latest company, they wanted my wife's name on there as well. So, we did. We continue to make payments on that debt and will in order to preseve my wife's credit for future credit needs (renting our next home, car, etc.).

I will be filing individually. My wife's income for a family of 4 (as outlined under the Washington State Laws) is still under the median income even if someone were to raise a stink about her ability to pay.

Family Assets (of mention):
Car #1 - Registered in my name, paid for (KBB says it's worth $12,500)
Car #2 - Lease under my wifes name

Cash - $15,000 (in a savings account in my wife's name and has been there for a year)

Jewelry - $60,000
I have three watches totaling $7,000 maybe and the rest is my wifes. All previous attorney's have said, "Tell the Trustee to first prove and then find it!" Uhm, ok, except, I have it insured. If I mysteriously sell it to my brother for $1, barring that's legal, won't they find out about the policy?

Since Washington State is a community property state, I will assume that the $60k in jewelry will all be lumped in. The reality, however, is that the jewelry is MAYBE worth $15k - 20k with a 300% mark up ($15k in cost to jewelry maker - sold to retailer for 100% mark-up = $30k - retailer sells it to me for 100% mark-up = $60,000).

So, If I'm allowed to keep $2500 per car ($12,500 - $2,500 = $10,000), my wife will blow through the $15k in prepaying her car lease and paying off her $7k credit card, and I have $15,000 in jewelry, I will owe the Trustee (for distribution) $25,000.

Does that all sound right?

In short:
1) Do I have to remain unemployed until the discharge to ensure I qualify for a CH. 7 (assuming I will make more than the median State income)?

2) Will the Trustee find our jewelry (not really find, ask for policies), are my wifes items included, and how are they valued (retail, cost, appraisal)?

3) Does the $15k get to stay in my wifes account or do we blow it on the credit card (hers) and car lease in order to not lose it?

I hope this makes sense and thank you, in advance, for your assistance.


**As a side note of interest, after the home went into foreclosure the HELOC company called and began immediately working with me on a settlement. They started at 85% and as soon as I explained I was unemployed and exploring my legal options, they dropped to 10%. My fear in not doing this with all of my debtors is this could take a year or more with the other 3. I don't / can't remain unemployed that long just to work this out with them all. The unemployment and BK consideration sure got their attention fast, though!

[tcreegan]

Hi IOEveryone,

Washington is a community property state, that is going to complicate your BK situation...

Debts and assets acquired during the marriage belong to the "community"

Debts discharged in your BK are discharged for the "community" ...meaning for both your and your wife.

Unfortunately the personal property is also "community" ...what is hers is yours and has to be protected in the BK

Usually pre-marriage debts & assets that are kept separate are not community property, and sometimes things can be kept separate in the marriage but you need a WA lawyer to advise you on how WA community property laws work. Since you are banking so heavily on the separation you really need an expert opinion.

On your questions...

1) To "qualify" for a Ch 7 BK, you have to pass the means-test which looks at your income vs your states median income (4 person household in WA, median = $6773/month) You can be a little over this b/c there are deductions you can take from your income. Your monthly income is the average of the last 6 months. Even if filing alone, you have to add in your spouses income minus what she pays for her separate stuff. In a BK, it is 'household income' that counts. So employed or unemployed, add it up and divide by 6 and compare it to $6773

2) Values are "used" values, appraisals or a peek in a pawnshop will work. Unless your wife can separate her property from the community, it all goes in your BK. Whatever is in your BK, some of it can be exempted using either the WA or federal list of exempt property. In both there are 'wildcard' values that you use on anything.

3) Usually the cash acct would be community and you would need to spend it or lose it. But...find out if it can be separated from the community. (same goes for the cars) And if you can't separate it, don't spend it on paying unsecured debt.

And a final word of caution, don't sell anything to your brother for $1, no transfers or sales less than market value to "insiders" in the year before BK.

Welcome aboard!

Tom in Colo

[DebtEnder]

Just want to add, didn't read all the details, it's late sorry. But if the lines of credit and CC and other debt all all business related, and over half of your debt, then a non-consumer BK7 is an option. As such no means test or Median income matters.

[IOEveryone]

Thanks Tom and DebtEnder for your input!

I have sourced what I believe to be a competent lawyer and have scheduled an appointment as my six months of unemployment are close (February).

DebtEnder, I was not aware of the non-consumer BK option. The loans are under my name, however, I can prove at least 50% of the funds were directly injected into the business. I'll organize those records for the lawyer to peruse and see if I qualify for any other alternative options.

Thanks!

[LadyInTheRed]

If the $10,000 or any of the jewelry was owned by your wife before your marriage or she received it during your marriage as a gift or inheritance, it is her separate property as long as they are kept separate. My sources for this are quoted and linked below.

Property being her separate property is good for exemption purposes, but I believe the downside to that is that if community property debt is discharged in your bankruptcy, a creditor could still go after her separate property to pay off her half of the community property debt. This is my understanding from what I've read on this board. So, confirm it with your attorney (as you should with all information you get here).

Property Ownership
Perhaps each of you owned property before your marriage, such as stocks, bonds or other property either purchased with separate funds, inherited or given to you. This is not community property. Also, any inheritance received after marriage is not community property. Such "separate" property remains yours, and yours alone, as long as it is kept separate from the community property. Husbands and wives may, with appropriate documents, change separate property into community property. However, in a divorce the court has broad powers to award both community and separate property to either spouse.

A spouse seeking to maintain the "separate" nature of his/her property should consult an attorney to prevent unintended "community" interest in his/her separate property.

http://www.wsba.org/media/publications/pamphlets/marriage.htm

What is Separate Property?
Any property you came into a marriage with is your separate property. Likewise, gift and inheritance, as well as any rents or profits that come from them, is separate property (unless it was a gift to the couple, as a community). For example, if wife Liz inherits $5000 from her father’s estate, ten years after she is married, that $5000 is her separate property. If Liz inherits a farm and rents the use of it, any profits from that farm are her separate property. If Liz’s father gives a Christmas gift of $5,000, with a card that says “To Bob and Liz, for your down payment,” this would be community property, because it was given to the couple, as a community. Important Note: Whether it is community or separate property is not determined by the name or names on the title(s).

http://www.avvo.com/legal-guides/ugc/washingtons-community-property-laws-explained