Filing Bankruptcy Separately from Spouse

[womanonfire]

I have some questions on whether it will benefit us to file bankruptcy together or separately.

We're in Georgia. If he files now and I file later, can I still claim the marriage exemption to protect the homestead. He's not on the title or mortgage.

My husband and I had a business together and we sold it at a loss. But still owe business debt. Can that be included in our bankruptcies?

From the business, we still owe two of our vendors a less than $2500 each that we are going to get a family loan to pay off. What is the likelihood of those payments being seen as a preference? I thought the look back is only three months but just read elsewhere it could be for two years?

We both owe IRS debt jointly, if he files chapter 7 now, he'll get rid of it and I'll owe it all myself correct?

In a Chapter 13, I have to pay back all creditors the amount of equity I have in my home. So if I have 75,000 in unsecured debt, 25,000 in IRS debt, and owe $120,000 on mortgage and the house is worth $220,000, then I have to payback $100,000 through a 5 year plan correct?

Thanks!

[justbroke]

We're in Georgia. If he files now and I file later, can I still claim the marriage exemption to protect the homestead. He's not on the title or mortgage.

That's a tough question to answer as there may be some legal implications. You can claim the marriage exemption (doubled) whenever you file. I don't know if he can claim the exemption, but you certainly can claim the entire exemption.

My husband and I had a business together and we sold it at a loss. But still owe business debt. Can that be included in our bankruptcies?

If you are talking about "personally guaranteed" debt, then absolutely yes. You can include any debt which you are personally ogligated to pay. You can't, however, include any debt that was not personally guaranteed by you. You could not include debt for a business entity that is not a sole proprietorship (e.g. LLC, S Corp, C Corp, etc). In those cases, you should file bankruptcy for the business entity and liquidate the business (but it reads as if you already sold the business).

From the business, we still owe two of our vendors a less than $2500 each that we are going to get a family loan to pay off. What is the likelihood of those payments being seen as a preference? I thought the look back is only three months but just read elsewhere it could be for two years?

Why are you paying the vendors? If this is personally guaranteed debt and you pay them, then the look back is 1 year! This also counts if someone pays it on your behalf (as you're the beneficiary of the payment). This would be within the Trustee's reach to claw back. However, the Trustee would claw it back from the vendors, and not you or your family personally.

That's why I ask... why would you even pay this if you're insolvent? The entire reason for this part of the code, where the Trustee can clawback certain transfers, is because of something known as a preference. A preference occurs when you prefer to pay one creditor over other creditors even though you can't afford to pay them all. It was meant as a way to level the playing field where debtors would typically pay back friends, family members, and business partners first.

We both owe IRS debt jointly, if he files chapter 7 now, he'll get rid of it and I'll owe it all myself correct?

He'll get rid of his personal responsibility, but not yours (as you're not in a community property State). At least, that's how I read it. You will be left holding the bag, so to speak.

In a Chapter 13, I have to pay back all creditors the amount of equity I have in my home. So if I have 75,000 in unsecured debt, 25,000 in IRS debt, and owe $120,000 on mortgage and the house is worth $220,000, then I have to payback $100,000 through a 5 year plan correct?

Unless the IRS debt is subject to discharge, you will payback all of the (priority unsecured) IRS debt. If you have $100K in equity and $75,00 in (non-priority) unsecured debt, then you would need to propose a 100% plan (a plan that pays the unsecured creditors 100% of their claims).

[womanonfire]

Thank you justbroke!

That's a tough question to answer as there may be some legal implications. You can claim the marriage exemption (doubled) whenever you file. I don't know if he can claim the exemption, but you certainly can claim the entire exemption.

What other legal implications might there be?

If you are talking about "personally guaranteed" debt, then absolutely yes. You can include any debt which you are personally ogligated to pay. You can't, however, include any debt that was not personally guaranteed by you. You could not include debt for a business entity that is not a sole proprietorship (e.g. LLC, S Corp, C Corp, etc). In those cases, you should file bankruptcy for the business entity and liquidate the business (but it reads as if you already sold the business).

The business was an LLC. Another problem is that my husband took out a working capital loan in my name without my consent. Not sure what to do about that. Long story on why but now the former biz owes it. Any other suggestions here?

Why are you paying the vendors? If this is personally guaranteed debt and you pay them, then the look back is 1 year! This also counts if someone pays it on your behalf (as you're the beneficiary of the payment). This would be within the Trustee's reach to claw back. However, the Trustee would claw it back from the vendors, and not you or your family personally.

This is debt incurred under the former LLC and they are small businesses and we just don't want to stick it to them. Kinda like a do unto other things. Plus we may try this biz again later, and we don't want to burn our vendors.

Unless the IRS debt is subject to discharge, you will payback all of the (priority unsecured) IRS debt. If you have $100K in equity and $75,000 in (non-priority) unsecured debt, then you would need to propose a 100% plan (a plan that pays the unsecured creditors 100% of their claims).

How do you know if the IRS debt is priority unsecured? So it seems, that I would never be able to achieve this plan on my own, that I might need my husbands income. In this instance, if he then waited to file, would all of his debt be discharged since he has no equity in anything?

Thanks again!

[justbroke]

What other legal implications might there be?

For a Chapter 7, a Trustee that pokes at the title/deed or sees some other issue.

The business was an LLC. Another problem is that my husband took out a working capital loan in my name without my consent. Not sure what to do about that. Long story on why but now the former biz owes it. Any other suggestions here?

If it's personally guaranteed, then you'll have to file bankruptcy and discharge your personal liability. The business will always have the debt even if it is shut down and liquidated. Business debt is never discharged.

This is debt incurred under the former LLC and they are small businesses and we just don't want to stick it to them. Kinda like a do unto other things. Plus we may try this biz again later, and we don't want to burn our vendors.

You are free to pay them whatever you want AFTER you file and are discharged. Nothing prevents any debtor from paying back any discharged creditor after discharge! People do this all the time to keep good relationships with, for example, medical practitioners. They want to keep their doctor!

How do you know if the IRS debt is priority unsecured? So it seems, that I would never be able to achieve this plan on my own, that I might need my husbands income. In this instance, if he then waited to file, would all of his debt be discharged since he has no equity in anything?

If the IRS debt is less than 3 years old (when last due) then it's "priority" unsecured. As for bankruptcy planning on who should file first, that's an exercise I'll leave for your attorney. You would need to look at both scenarios to see how they play out.

[womanonfire]

If it's personally guaranteed, then you'll have to file bankruptcy and discharge your personal liability. The business will always have the debt even if it is shut down and liquidated. Business debt is never discharged.

So essentially they can still sue the business? It sounds like we're stuck paying it then even though it was personally guaranteed or should I just look at the business as being judgement proof? It was sold at a loss.

You are free to pay them whatever you want AFTER you file and are discharged. Nothing prevents any debtor from paying back any discharged creditor after discharge! People do this all the time to keep good relationships with, for example, medical practitioners. They want to keep their doctor!

I'm still confused why we can't just pay them since their business creditors and we're only filing for personal bankruptcy or what would happen to those payments?

If the IRS debt is less than 3 years old (when last due) then it's "priority" unsecured. As for bankruptcy planning on who should file first, that's an exercise I'll leave for your attorney. You would need to look at both scenarios to see how they play out.

Does making an IRS payment re-age the debt? We're currently under a payment plan with them. I think it would be foolish to not pay the IRS but curious if they would try and garnish our wages or put a lien on the house or both? Does anyone have any experience on this?

Thanks again, this is so very helpful!

[womanonfire]

If I'm thinking about this straight, the only advantage I see to my husband waiting is that we will have more disposable income to complete a plan. I don't think my income alone will work to pay off 100% of creditors in a Chapter 13. But if he is not on the title to the house, can we still get rid of 100% of his debt in a chapter 13 or does his unsecured debt paid too?

[justbroke]

So essentially they can still sue the business? It sounds like we're stuck paying it then even though it was personally guaranteed or should I just look at the business as being judgement proof? It was sold at a loss.

Absolutely. Business debt never dies. If you re-open the business with the same name they can legally just come in like vultures and pick at the new carcass. (By "come in" I mean to file suit.)

I'm still confused why we can't just pay them since their business creditors and we're only filing for personal bankruptcy or what would happen to those payments?

If it's in the "regular course of business" then it is fine to pay business creditors. But if your going to liquidate the businesses you could run into the same issue of preferences. I would certainly speak with a bankruptcy attorney that is familiar with business bankruptcy and personal bankruptcy so that you balance how you get through this.

Does making an IRS payment re-age the debt? We're currently under a payment plan with them. I think it would be foolish to not pay the IRS but curious if they would try and garnish our wages or put a lien on the house or both? Does anyone have any experience on this?

No, it does not re-age the debt. When you are on a payment plan, they NEVER take any enforcement action (lien, levy, garnish). I had personal experience with this. Continue to pay and it's not an issue. When you file bankruptcy, your OPA (online payment agreement) will be cancelled. When the bankruptcy is done, just start a new OPA after the case is discharged and closed. The IRS is treated like other creditors when it comes to the automatic stay and bankruptcy.

(Everything I wrote the OPA and IRS is exactly what I did. I was in an OPA, filed Chapter 13. Converted to Chapter 7. Requested a new OPA. Then filed Chapter 13, 6 years later. Discharged the older debt and repaid the non-dischargeable debt. IRS is happy. I'm happy.)

[womanonfire]

Absolutely. Business debt never dies. If you re-open the business with the same name they can legally just come in like vultures and pick at the new carcass. (By "come in" I mean to file suit.)

If it's in the "regular course of business" then it is fine to pay business creditors. But if your going to liquidate the businesses you could run into the same issue of preferences. I would certainly speak with a bankruptcy attorney that is familiar with business bankruptcy and personal bankruptcy so that you balance how you get through this.

No, it does not re-age the debt. When you are on a payment plan, they NEVER take any enforcement action (lien, levy, garnish). I had personal experience with this. Continue to pay and it's not an issue. When you file bankruptcy, your OPA (online payment agreement) will be cancelled. When the bankruptcy is done, just start a new OPA after the case is discharged and closed. The IRS is treated like other creditors when it comes to the automatic stay and bankruptcy.

(Everything I wrote the OPA and IRS is exactly what I did. I was in an OPA, filed Chapter 13. Converted to Chapter 7. Requested a new OPA. Then filed Chapter 7 6 years later. Discharged the older debt and repaid the non-dischargeable debt. IRS is happy. I'm happy.)

Sounds like you did your research and your filings were very strategic! My biggest issue is that I think I may have a lot of equity in my home. Considering this, I think it may be beneficial for my husband to file. If he did not personally guarantee any of the business debt using his social, then does he have to list it in a Chapter 7? He was quoted what I think is an astronomical rate for a no asset Chapter 7.

We dissolved and sold our business in Oct. 2019. If the answer above is yes, he still does, if I pay off the aforementioned vendors, does he still have to list them as creditors when he files? Or will the Trustee look back at those?

[justbroke]

Sounds like you did your research and your filings were very strategic! My biggest issue is that I think I may have a lot of equity in my home. Considering this, I think it may be beneficial for my husband to file. If he did not personally guarantee any of the business debt using his social, then does he have to list it in a Chapter 7? He was quoted what I think is an astronomical rate for a no asset Chapter 7.

While my response could be different for a community-property State, I would say that if he has no creditors (from the business debt) then he has nothing to list.

We dissolved and sold our business in Oct. 2019. If the answer above is yes, he still does, if I pay off the aforementioned vendors, does he still have to list them as creditors when he files? Or will the Trustee look back at those?

I don't know the terms of the sale of the business. For example, did you sell it along with the debt? If the debt was not sold and transferred to the new owners, then the guarantees likely still apply. If your spouse guaranteed that debt then s/he is still on the hook for the debt regardless of having sold the business. I'm talking about a scenario in which the debt was not also assigned/assumed to the buyer in the transaction.

As for the astronomical rate, I'm guessing it's around $4,500. A lot of the pricing on Chapter 7s, and even Chapter 13s, are based on complexities. You have a complex case. But, still shop around and find an attorney that makes your comfortable; but don't pick the "cheapest" one just because they're cheaper.