Income Tax Debt and Chapter 7 Bankruptcy Relief

A common question arises in many of my recent debt relief consultations: How will my income tax debt affect my attempts to completely wipe out my debt, both overall and as to the tax debt itself?

Taxes and Bypassing The Means Test

The first hurdle to proceed in filing under Chapter 7 is the “means test”, which is a formula designed to limit people with higher incomes from seeking Chapter 7 bankruptcy relief. The means test formula uses your last six (6) months’ household income, IRS Data and National Standards to calculate your monthly “disposable income.” While people with debt issues find themselves living paycheck-to-paycheck and regularly borrowing from Peter to pay Paul, many of these same people are often bewildered by the fact that the means test results in, at least on paper, a positive disposable income from which creditors can be paid.

An exception to the requirement of passing the means test to qualify for Chapter 7 relief is if your debts are not primarily “consumer” in nature. Consumer debt is defined as debt incurred for primarily personal, family or household purposes. Good news for people who have incurred substantial income tax debt over the years: most courts consider taxes to be non-consumer debt, even though such debt is almost always incurred for personal, family or household purposes. But who are we to complain about this characterization; bottom line is if your taxes represent more than fifty percent (50%) of your overall debt, you do not have to take the means test to file under Chapter 7.

Discharging Income Tax Debt

Whether your income tax debt is the majority of your debt or not, there are limitations on what income taxes can be discharged/wiped out. Generally, you can discharge/wipe out income tax debt in Chapter 7 bankruptcy only if all of the following conditions are met:


  1. The debt is at least three (3) years old. To eliminate an income tax debt, the tax return must have been originally due at least three (3) years before you filed for bankruptcy relief.
  2. You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two (2) years before filing for bankruptcy. In most courts if you failed to file a return and the IRS filed a substitute return on your behalf, you have not filed a “return” and cannot discharge the income tax.
  3. You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, your income tax liability cannot be wiped out.
  4. You pass the “240-day rule.” Your income tax debt must have been assessed by the tax agency at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. Note:       This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.

 Final Note – Slight Twist (Tax Liens)

 Even if you are able to wipe out your income taxes under Chapter 7, you may still end up paying at least a portion of your tax liability. While you will no longer have a personal obligation to pay such taxes, bankruptcy relief will not wipe out prior recorded tax liens against your real estate. The lien will remain on the property and you’ll have to pay off the tax lien in order to sell the property.

Overwhelmed by substantial debt or have any questions about the above topic? The Law Offices of Ian S. Topf, APC offer free consultation in a variety of issues, ranging from bankruptcy, family law/divorce, and estate planning to criminal/DUI matters and landlord/tenant disputes.

Think You Can’t Afford to File for Bankruptcy?

According to a new study by the Federal Reserve Bank of New York, changes originally enacted in 2005 to the Bankruptcy Abuse Prevention and Consumer Protection Act have made it substantially more difficult for “financially struggling people” to file for bankruptcy relief.

While it’s true that changes like these have made it tougher for people to seek bankruptcy protection in general, I don’t believe the additional hurdles put into place present a significantly greater financial hardship than before these changes were made. Remember, as stated in a couple of my prior blogs, there may be several different options to explore if you’re in need of debt relief.

The three common debt relief choices are:

Ignore the debt. Typically under California law, there’s a four-year statute of limitations for debts (except those made with an oral contract, for which the statute of limitations is two years). While I generally do not advise clients to go this route, especially if your debt(s) were incurred recently, you may just simply ignore your debt and hope the statute runs. In my experience, though, creditors are a pretty unforgiving bunch. Eventually you may get sued, which will eventually lead to having your wages garnished, liens attached to your property, and/or bank accounts/other property seized and forfeited to your creditor(s). Also, interest, penalties, and other fees for non-payment will keep accruing on your debts, worsening the situation.

Negotiate to settle the debt. In general, creditors are willing to reduce the overall balance owed on a debt, if they know they are going to get paid, especially if (1) you’ve missed at least a few payments and (2) you are willing to pay off the settled amount promptly (either lump-sum or over only a couple of months). The bad news is the government has made it a bit harder to negotiate with creditors. There is now a mandatory requirement that, with certain exceptions, creditors issue a 1099 Form for any balance forgiven in a settlement when the settlement amount equates to a more-than-$600 reduction from the balance you actually owe, You will then have to declare that 1099 amount on your taxes as if it were income (and pay taxes on said amount). Say, for example, you owe $2,000 and you negotiate a lump-sum settlement of $1,200, you will receive a 1099 for $800 to be added to your gross income for the year when tax time comes around.

File for bankruptcy relief. If neither of the first two options work, you will probably find yourself in bankruptcy court. In my opinion, in general, the greatest change that impacts one’s ability to file for bankruptcy relief has been the increase in allowable attorney fees in bankruptcy cases. For example, here in San Diego, California, bankruptcy attorneys can now initial fees of up to $3,600.00 for a Chapter 13 consumer bankruptcy filing, up from $1,700.00 in 2012. These fees usually do not include certain administrative costs and other miscellaneous fees for actions that may take place during the course of the bankruptcy case.

Where does this leave people in need of relief?

In general, if push came to shove, most people can come up with the requisite monies needed to hire a bankruptcy attorney to assist them in getting rid of a far more substantial amount of debt. For those who aren’t able to do so, there will always be attorneys (including myself) who usually don’t charge the allowable “standard” attorney’s fee.

There’s also the option of representing yourself in matters of bankruptcy relief, though of course, you’re held to the same standards and requirements as an attorney representing you in such an action. In my experience, those charged with monitoring your bankruptcy case (court websites, court clerks, the U.S. Trustees’ office) can be both understanding and helpful in providing information that may assist you with proceeding on your own.

A word of caution: There are individuals and businesses out there offering bankruptcy preparation services for “reduced fees.” Across the U.S., bankruptcy courts have had issues with such services, since they generally offer document preparation services with minimal instructions on how to file. The end-product is often incomplete and there’s usually no follow-up after the bankruptcy petition is filed. While not all such bankruptcy preparers operate this way, I urge you to carefully explore your options before choosing such a service.

In conclusion, while it is true that desperate times call for desperate measures, there are several non-drastic opportunities out there for debt relief, contrary to what the public is being led to believe by recent studies and news articles. So if you find yourself in a personal financial crisis, don’t just curl up into a ball and hope your problems will magically disappear; reach out to a skilled debt relief professional and explore your options.

Are you in need of legal counseling for bankruptcy or debt issues or have any questions regarding the above? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.

2015 Resolution: Take Care of Your Legal Needs

On behalf of all of us at the Law Offices of Ian S. Topf, APC, best wishes for a happy, healthy and prosperous 2015!

It’s not too late to make a New Year’s resolution that will benefit you and your family throughout the new year. This is a great time to take care of some essential legal planning responsibilities – and you’ll feel much better when you do.

Estate planning

Many people mistakenly think of an estate plan as something that matters only when they die, but there’s really much more to it than that. With a thorough and carefully prepared plan in place, your loved ones won’t have to experience the additional stress of wondering about your final wishes (health, financial, etc.) should you become physically incapacitated and unable to share those wishes during a highly emotional time.

If you already have an existing estate plan, the new year offers a perfect opportunity to review the plan so it reflects any changes that took place during 2014. Such changes might have included:

  • Got divorced or remarried
  • Blessed with the birth or adoption of an additional child in the family
  • Need to remove or replace an agent or beneficiary who passed away
  • New wishes for how you want to have your medical needs addressed

It’s also important to note that, depending on when you first created your estate plan, California law may have changed in ways that invalidate some provisions (or at least affected them so they’re no longer practical). In my legal practice, for example, I’ve come across very old estate plans that haven’t been modified to accommodate requirements under HIPAA (Health Insurance Portability and Accountability Act) and/or the California Probate Code. Without being updated, such plans could run into serious legal problems at a later date; the same problems you have sought to avoid by creating your estate plan in the first place.

In summary, now’s a good time to check with an experienced lawyer to make sure your estate plan is still legally valid and will sleeping aids carry out your wishes, and, if you do not have an estate plan in place, get to it!

Debt relief

Are you one of the many, many Americans who spent too much money during the holidays and find yourself starting the new year in considerable debt? Rather than wallow in this predicament, take advantage of free consultation offered by many debt relief attorneys (including myself)!

We can help you design pro-active ways to resolve your debt and gain control of your financial situation, so you can actually move forward in 2015 without this enormous weight on your shoulders. Don’t wait for debt collectors to start coming after you!

Take action

This brings me to what I think should be everyone’s most important New Year’s resolution: Stop procrastinating! It’s understandable that people put off their legal planning—after all, approaching a lawyer about estate planning or debt relief or any other legal matter seems like a severely negative thing, and most of us naturally drag our feet on these issues, sometimes until it is too late. But think how much better you’ll feel after you address and resolve these matters directly.
For families and individuals who have enrolled in legal insurance plans, I suggest you take a closer look at what these plans have to offer. Many plans provide full-service benefits for legal matters like estate planning and debt relief. They’re also very helpful for general legal advice on a wide range of legal matters.

Remember—you don’t have to wait until you’re facing a lawsuit (or initiating one) to get in touch with an attorney. We can help you cope with many of life’s challenges and free you up for other important goals in the coming year.

Are you in need of legal counseling or have any questions about the above topics? The Law Offices of Ian S. Topf, APC offer a free consultation in a variety of issues, ranging from family law/divorce, bankruptcy, and estate planning to criminal/DUI matters and landlord/tenant disputes.

What Happens When You Marry Someone with Support or Debt Obligations?

These days, it’s not uncommon for a person to marry someone who comes with some financial “baggage”—that is, with debts or support obligations of some kind. Here’s a fairly typical scenario:

Jane comes to my office seeking information about getting a pre-nuptial agreement. Her fiancé, Frank, is saddled with several types of obligations. Her fiancé underwent a horrible divorce from his first wife and Jane believes the ex-wife will go to any lengths to get what she can from him—including having her attorney subpoena Frank’s financial institutions for information on his various accounts. Naturally, Jane wants to know, if she proceeds to marry Frank, is she exposed to similar legal actions?  What is her risk with respect to his spousal support, child support and/or any debt Frank has incurred?

Let’s take a look at each type of obligation and see how Jane may or may not be involved:

Spousal Support

 In California, a new spouse’s income or assets generally has no effect on the spousal support obligation of their new partner. In other words, what belongs to Jane in terms of property or income is not connected to Frank’s spousal support situation. The Court doesn’t use this new information to re-calculate or otherwise alter the amount of support Frank is obligated to pay his ex-wife.

There is one notable exception: If, after remarrying, Frank were to quit his job or become a stay-at-home spouse (because his new wife has a well-paying position) and then attempt to either terminate or decrease the amount of spousal support he’s obligated to pay, the Court would likely see this as an intentional attempt to evade his legal responsibilities – and may not change his spousal support obligation.

Child Support

Again, in California, Jane’s assets generally do not come into play in a situation where Frank is paying child support related to his previous relationship(s). But, as noted above, it’s a different story if Frank decides to leave his job or otherwise decrease his income. Under California Family Code Section 4057.5, the income of a new spouse can be used “in an extraordinary case where excluding that income would lead to extreme hardship to any child subject to the child’s support award.”

The court will always be guided by what is deemed to be in the child’s best interests.


When it comes to debt obligations, Jane’s potential risk is a different matter entirely. With a new marriage in California, what both parties own together is automatically subject to community property law (e.g. anything acquired during the marriage is presumed to be split 50-50 between the spouses). If Jane puts Frank’s name on any of her assets – for example, adding his name to her savings account or on the deed to the house – creditors can now pursue what Jane considers her property for repayment of Frank’s debts. Her assets should remain untouched if her name is the only one connected to those assets. Most creditors won’t go to the trouble of going after assets in the non-debtor spouse’s name.

Of course, where a house or similar large property is concerned and a lender or other entity requires the signing of a Interspousal Transfer Deed in the course of a refinance (placing title solely in Jane’s name), Frank essentially gives up his legal rights to ownership by signing such documentation. Should this second marriage end up in divorce, Frank may have no claim on the house and the property will be awarded to Jane as her sole and separate property.

A pre-nuptial agreement is an effective way to fully clarify both spouses’ debts and support obligations before marriage takes place and provide the parties with clear guidelines on how to handle their property and obligations throughout their marriage. That’s what I recommended to Jane and what I generally tell all of my clients facing this relatively common situation.

Getting married or just have any questions regarding the above topic? The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from family law, bankruptcy, debt collection defense, estate planning, criminal defense, DUIs, and general civil matters. 

How Can You Avoid Falling into the Bankruptcy Trap?

There’s a familiar—and dangerous—cycle I regularly see with regard to debt and bankruptcy relief.  Many people come to the conclusion that they’re carrying more debt than they can afford, so they file for bankruptcy, get relief from those debts under and then fall into the same debt-incurring behavior. Eight years pass (the legal period between filing for another Chapter 7 bankruptcy) and, because they lack any other options, they once again file for debt relief. This “bankruptcy trap” is a terrible spot to find yourself in and I advise clients to do everything possible to avoid it.

If you’ve experienced this situation and want to make some serious changes in your life, here are options for improving your chances of breaking the cycle:

Take the required classes in credit counseling seriously. Since 2005, it’s been mandatory in California that anyone seeking bankruptcy relief must attend two required classes. The first class, on credit counseling, actually takes place before your bankruptcy filing. In this class, counselors offer informal opinions about what course of action might be most beneficial for you—applying for debt relief, working out a household budget, etc. While in most cases, filing for bankruptcy is inevitable, I believe there’s value in getting a third party to objectively assess your situation.

The second class, taken during the bankruptcy process, is called a “debtor education class.” Individuals learn about moving forward following bankruptcy, receiving valuable advice on budgeting, rebuilding credit and avoiding credit scams and other pitfalls. I urge my clients—and anyone else in the same situation who reads this post—to take these classes very seriously. They can be very useful in helping you turn your life around.

Design a sensible budget. When you file for bankruptcy (especially Chapter 7), you’re showing the court that your net income is insufficient to pay your reasonable expenses. Chapter 7 helps you eliminate substantial debt, but you still walk out of the process with that same budget. Now it’s time to reassess your expenses, which is easier to do than reassessing your income. What expenses can you get rid of and what anti anxiety expenses should be paid first? Sticking to a sensible budget plan will take you a long way toward financial stability.

Schedule your payments. It’s vitally important to pay your bills on time, since prompt payment makes up a key portion of your credit score. Missing payments negatively affects that credit score and limits your opportunities to bounce back from bankruptcy. On the other hand, making payments on time improves your credit score, which in turn makes future credit opportunities easier to attain—and often with lower interest rates. This can be very helpful when the time comes to apply for a car loan or mortgage.

 Apply for credit. Many people mistakenly believe that if they file for bankruptcy, they’ll never be able to get a credit card again. On the contrary—credit card companies will see you as a “clean slate,” and do everything they can to get your credit card application. It’s OK to apply for a new credit card, as long as you read the fine print. Many so-called credit card opportunities come with astronomically high interest charges attached (as high as 25-30% annual rates!). Signing up for one of those will only send you back down the path to debt.

Fortunately, by doing your due diligence, you may find yourself eligible for lower interest-rate credit cards or a secured or pre-paid credit card. When you stay on top of your payment schedule, the bank (or other entity) that offers the card will report those positive payments—thus affecting your credit score in a positive way. Then you’re on the way to establishing your good credit.

Be smart. Know your limits. Create and maintain a workable budget. Then you’re much less likely to fall prey to the dreaded bankruptcy trap.

Are you in need of legal counseling for bankruptcy or debt issues or have any questions regarding the above? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.

How a Reaffirmation Agreement Can HelpYou During Bankrup

A Chapter 7 bankruptcy is a legal action which allows a person to eliminate most of his or her debts. With respect to unsecured debts, such as general consumer debts, credit card debts, and any other debts that aren’t secured by some form of collateral, the vast majority, if not all, will be wiped out.

A question I usually get is what happens to secured debts in a Chapter 7 matter? A secured debt is when the creditor has a lien on your property to protect the creditor’s rights as to the underlying loan obligation. For example, with the typical car loan, the agreement with the lender will include the lender placing a lien on the car, in case you stop paying on the loan. This permits the creditor to repossess the vehicle.

If you face bankruptcy and have one or more secured debts, there are different options available to resolve the situation:

  1. You can surrender the property to the lender or other financing company and wipe out your personal liability for the debt.
  2. You can redeem the property by buying it outright for the then-market value. If you make a lump-sum payment for the fair amount value of any item of property, a bankruptcy court will allow you to keep the property and eliminate any remaining debt against that property. (The fair-market value has to be agreed-upon by the lender or ordered by the court). Let’s say you have a car worth $4,000, but the conditions of the financing agreement with the bank means you still owe $12,000 on the car. By writing a check for $4,000, you can keep the car and see the remaining $8,000 debt wiped out.
  3. Finally, you can sign a reaffirmation agreement. This is a contract between you, the debtor, and the creditor, which allows you to maintain your interest in the property. To use another example involving a car: You have a car worth $6,000 and you owe $9,000 in debt against the car. You don’t pharmacy have the funds to buy the car outright (as in example #2), but through a reaffirmation agreement, you agree to adhere to the terms of your car loan, thereby keeping the vehicle while continuing to make payments per the original contract.

A reaffirmation agreement is a good option if you wish to keep your car, but can’t buy it outright—a car being, of course, close to essential for many people.

A few other points on this subject:

  • When you file for bankruptcy, any debts that are not reaffirmed or ordered by the court to be non-dischargeable or non-dischargeable by law are wiped out. In other words, if you do not sign the reaffirmation agreement, the debt against your car is eliminated—but since the lender has a lien on the car, they have the right to repossess the vehicle at any time.
  • Many creditors, such as mortgage lenders, do not offer reaffirmation agreements. But, generally speaking, if you continue to make payments on your mortgage, they are unlikely to initiate foreclosure actions.

There are times when signing a reaffirmation agreement can have negative consequences. When you sign this agreement, it gets processed by the bankruptcy court. If you lose your job or otherwise default on your debt, the creditor has the same rights as if you never went through bankruptcy at all. The creditor can also refuse a payment and repossess the property, if they wish to.

If you face a bankruptcy situation and have secured debt on property you are thinking about keeping, a reaffirmation agreement is an option worth exploring. Be sure to contact an experienced, knowledgeable bankruptcy attorney before making any such decisions.

Are you in need of legal assistance regarding debt relief options or have any questions regarding the above topic? The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from bankruptcy, debt collection defense, estate planning, family law, as well as DUIs and civil matters.

What Happens If You Get a Collection Notice

Getting a collection notice in the mail is never a fun thing. But it’s also not a reason to panic. In California and other states, there are very strict rules about the proper way to prepare and distribute a collection notice. So if you receive one, I recommend investigating the following factors before taking any action.

Is the debt valid?

There are certain factors which may render a debt uncollectible. For example, the debt might be very old and the time for collecting on it may have passed. Also, the individual who receives the notice might not be the actual account-holder. Cases of mistaken identity are not uncommon, especially when the supposed debtor has a name like “John Smith.” With all the John Smiths in the world, the John Smith who gets the collection notice may very well not be the John Smith.

Does the collection agency have the authority to collect?

Don’t assume that the collection agency that sent the notice is authorized to collect on your debt. It may have improperly acquired the right to act as a collection agency from the original creditor. Also, the agency must be licensed to collect debts in the state in which the account holder lives.

Is the form of contact legal?

In California, the Rosenthal Fair Debt Collections Practices Act lays out specific guidelines for what a collection notice must contain: the name and address of the collection agency, adequate information identifying who the agency is collecting for, the precise amount of the debt and appropriate disclaimers and notices of the account holder’s rights.

What to do next

First, and foremost, do not ignore the notice and just throw it away. In most cases, if you do not challenge the validity of the debt claim within thirty (30) days of the date of the notice, it is presumed valid, even if there is any issue (e.g. wrong person, severely aged debt, etc.). If there’s a problem womans health with compliance regarding any of the above questions, the collection activity might be ruled invalid. In such cases, I advise clients to notify the creditor (either on their own or through an attorney) to inform them that they are challenging the validity of both the debt itself and of the collection agency’s practices.

Even if you do owe a debt, it’s always good to make the collection agency demonstrate that the debt is genuine and that they have the authority to collect on it.

In your challenging notice, ask for the following:

  • Any documentation showing that the account being collected on was actually created and authorized by the account holder (in the form of a credit application, contract, promissory note, etc.)
  • A transaction history showing that the amount being collected on is actually the amount that is owed
  • Any documentation showing that the collection agency has the authority to collect (as demonstrated by an assignment of rights signed by the creditor or a purchase contract between the agency and creditor)
  • Any judgment which have been tendered against the account holder, relating to the account, if any exist

If the collection agency has been overly aggressive in its tactics—either through harassing telephone calls or in-person visits—the challenging notice can include a cease-and-desist demand, requesting that the collection agency stop all verbal or any non-written communication. There is no reason an account holder must submit to harassing collection procedures.

As I said, it’s never pleasant to receive a collection notice. But there are things you can do and services an experienced attorney can provide. Don’t take action without fully investigating your options.

Are you in need of legal assistance regarding a debt or receipt of a collection notice? The Law Offices of Ian S. Topf offers a free consultation in a variety of issues, ranging from debt collection defense, bankruptcy, family law, estate planning, and DUIs and civil matters.

Chapter 13 or Debt Consolidation?

Over the course of my career, many people have come to my office seeking to resolve issues of situations where they face serious debt. After meeting with them and determining that they would not be eligible to file for Chapter 7 bankruptcy relief, the choice often comes down to one of two options: working out a plan of debt consolidation or filing for bankruptcy relief under Chapter 13.

I have found that generally, in the majority of these cases, Chapter 13 may be the better option.

With debt consolidation, you or your representative negotiates with each of your creditors to eliminate or, at least, lessen the burden of your debts. Generally speaking, a successful negotiation results in either lowering the amount of money you owe, reducing the interest rate on your debt, or a combination of both. This eases your debt situation and makes life easier for you. The obvious benefit to the creditor is it’s always better to get something rather than nothing.

The case against debt consolidation

Debt consolidation also comes with several “negatives,” including:

  • The creditor has to opt in. Participation in the debt consolidation process is purely voluntary on a creditor’s part. They aren’t legally obliged to negotiate or participate at all.
  • The creditor doesn’t have to stick to the plan. Even if a creditor agrees to negotiate a debt consolidation plan, there’s usually nothing that obligates them to stay with that plan. They can back out at any time. Therefore, you have little to no protection if the creditor decides to resume their debt collection activity (including filing a lawsuit to recover their debt).
  • There are no statutory cost limits to debt consolidation. In other words, if you hire an attorney or debt consolidation company to represent you, you have to pay whatever terms they charge for their services—usually a percentage of your overall debt. In cases of substantial debt, that can add up to anywhere from 25 to 40 percent.

The case for Chapter 13

Unlike debt consolidation which generally only applies to consumer or credit card debt, Chapter 13 deals with all types of debts (credit card, medical bills, mortgage, car loans, etc.). It can be far more comprehensive than a debt consolidation plan.

When a debtor files for Chapter 13 bankruptcy, all collection activities (including lawsuits) come to an immediate halt. The court establishes legal mechanisms to determine how much of the debt will be repaid. A “means test” is applied—the calculation by which it’s determined how much money should be available to be utilized in a monthly payment plan. At the end of your payment plan, any remaining balances of any dischargeable debts are ordered discharged. If, for example, the court determines you’re only able to pay 10% of your dischargeable unsecured debt, then at the end of the bankruptcy period, the remaining 90% is wiped off the books.

Unlike debt consolidation, creditors are legally obliged to accept whatever arrangements the court orders. If creditors choose not to participate, generally speaking, they are completely out of luck.

Typically, a Chapter 13 plan lasts anywhere from three (3) to five (5) years (a debt consolidation can go on “forever”). Having a fixed repayment schedule through bankruptcy can be preferable to a debt consolidation plan which may still incur interest payments and late fees.

My recommendation

I strongly recommend consulting an attorney when exploring either of these options. Taking either of the above described debt resolution options while being unaware of the various legal ramifications can make the process more difficult (and more expensive) for you in the long run.

A final point: if you do choose to attempt debt consolidation, I suggest hiring an attorney or law firm, rather than a debt consolidation company. These companies often have little accountability, meaning there’s no governing board or an organization you can appeal to if things go wrong. Attorneys, on the other hand, are far more accountable for their actions, since they are subject to state bar and licensing requirements.

Overwhelmed by substantial debt or have any questions about the above topic? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law/divorce, and estate planning to criminal/DUI matters and landlord/tenant disputes.

Timing is Critical for Divorce/Dissolution of Domestic Partnership and Bankruptcy Filings

Debt and other money issues are often at the root of divorce or the dissolution of domestic partnerships. But these problems don’t just go away once a couple separates. When debt is incurred by spouses or domestic partners in their joint names (and, in some cases, in just one party’s name), creditors can go after either party, regardless of a divorce or dissolution of domestic partnership order.

For this reason, when one or both of parties have racked up significant debt and look ahead to life as single individuals, they may see bankruptcy as the best way to address their financial situation.

Filing for divorce and filing for bankruptcy are, of course, two separate legal matters, but if both actions are deemed necessary, the timing for each filing is especially critical. Why? Because while there may benefits to filing jointly for bankruptcy protection, such a move is generally not permitted once a divorce becomes final. As for domestic partners, the Defense of Marriage Act prohibits joint bankruptcy filings for unmarried partners.

Benefits of joint bankruptcy filing include:

  • Most attorneys charge the same fee whether one person or a married couple file for bankruptcy at the same time.
  • Filing for bankruptcy before a divorce should simplify debt and property division issues and lower your divorce costs.
  • In some circumstances, a married couple with dependents may find themselves eligible for certain types of bankruptcy relief, i.e., Chapter 7 discharge, for which a divorced individual with only visitation rights to his/her child(ren) may be deemed ineligible.

I often see clients who come in for both divorce and bankruptcy. If they both intend to file for bankruptcy, it generally does not matter which filing goes first. But if one party files for bankruptcy and the other party doesn’t, things can get messy.

When a bankruptcy action is pending, Family Courts are temporarily deprived of their jurisdiction over property and debt issues, but may still make orders with respect to the status of the marriage (or partnership), and such issues as child custody and child/spousal support. Once the bankruptcy matter has been settled, parties then can return to Family Court for orders relating to what remains with respect to asset and debt division—if any assets and/or debts are left over after the bankruptcy.

Sometimes it’s beneficial to file for bankruptcy after a divorce, but in general, it makes sense to get rid of the debt together before the divorce is granted. Whatever your situation, please be sure consult with an attorney before moving ahead with either a divorce and/or bankruptcy filing.

 Are you in need of legal counseling? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from family law and bankruptcy/debt collection defense, to DUIs/criminal defense and landlord/tenant disputes.

Debt Negotiation: An Alternative to Bankruptcy

Sometimes bankruptcy is worth considering as an answer to your debt problems. But before coming to that decision, there are other options—one good, one bad—worth exploring.

Here’s a bad option: Ignore your debt. Some people fall into debt and just pretend it’s not there. Others think they can put off creditors and debt collectors indefinitely. From my experience, these aren’t winning strategies.

With most types of debt, such as credit cards, there’s usually a long statute of limitations for a creditor to enforce a debt against someone (e.g. four years in California for open book accounts). This limitation period starts at the time of the most recent charge on a person’s account or the time of his or her last payment, whichever is more recent. If you haven’t used a credit card in, say, 10 years, but you did make a debt payment last year to keep a creditor off your back, what you may not realize is—the limitations period kicked in at the time of that payment, not when you last used it many years ago.

People who don’t know this (or ignore the situation entirely) often end up getting sued, and then having their wages garnished.

The better option, while not for everyone, is debt negotiation. This involves negotiating with creditors or collection agencies to reduce your outstanding debt balance and lower your amount of regular payments. In many cases, if you can claim financial hardship and an inability to pay off your debt, many creditors are willing to accept less than the full balance owed, in order to resolve their debt claim against you. (Basically, the principle is, getting paid something is better than getting paid nothing.) Successful debt negotiating still goes on your credit record as negative debt reporting, but for the most part, it’s a favorable alternative to bankruptcy.

Successful debt negotiations generally result in lower regular payments, no more extra charges (such as late payments or over-the-limit charges for credit cards) and, best of all, an end to frequent and highly unpleasant calls from creditors looking for money.

Debt negotiations don’t necessarily require the services of an attorney, but I believe it’s well worth your time to talk to one before embarking on this course of action. The creditor is not obligated to take part in negotiations, but as I said, most are willing to settle for partial payment, especially if the debt has lain dormant for a long period of time. Additionally, you want to be absolutely sure that your debts, once they’re negotiated, are truly and totally resolved. This means getting something in writing that confirms the debt has been satisfied—and a skilled attorney can make sure this happens for you.

When you make an appointment with an attorney to learn more about this option, be sure to bring all relevant documentation of the debt (including collection notices, financial statements, contact information on creditors and/or collections agencies, etc.). The attorney will consult with you on the best steps to take. If you choose to retain the attorney, he or she will contact the creditor on your behalf and begin negotiations to resolve your debt issues.

Are you in need of legal counseling for bankruptcy or debt issues? The Law Offices of Ian S. Topf offer free consultation in a variety of issues, ranging from bankruptcy, family law and estate planning to traffic violations and landlord/tenant disputes.