Filing Chapter 13 separately? - Learn from my bitter and brutal mistake

[Jaded49]

I live in a community property state. (CA) I filed chapter 13 but we did not include my husband because my husband's job entailed a security clearance. My attorney advised that a chapter 13 along with a security clearance would be the kiss of death for my husband's job. There was a brief discussion regarding the advantages of living in a community property state. Heeding their counsel I filed separately.

The plan was approved. It's important to note that it was not a 100% plan. We paid in just under $200,000 over the course of five arduous years. My poor husband worked 7 days a week. We nursed aged appliances and cars (with well over 100k miles). We deferred critical home maintenance and lived a meager existence. We pushed through always trying to keep the light at the end of the tunnel in view.

Well, discharge day came. Remember that I mentioned that this was a non 100% plan? Within five days creditors began hounding us. It ends up that there is still approximately $120,000 in unsecured debt remaining under my husband's name.

What I've learned:
1. Although we are in a community property state, a judgement and collection attempts can still be made against my husband. They might not be able to collect, but this still wreaks havok on our lives, his credit and in our case his employment (security clearance requirement).

2. When the trustee makes partial payments to some of the creditors, this restarts the statute of limitations.

3. Although we both had the benefit of the stay while the discharge was active, this too prolongs the statute of limitations.

I am so filled with despair, I can't even put it into words. I never ever would be someone that considered suicide, but briefly thought about it. I then remembered that my death would remove the meager protection that my husband has with a community discharge.

I have no idea what we'll do next. We absolutely do not have $120,000. Over time has dried up and most likely if this isn't resolved, it will cost my husband his job. We are not young people. I cannot imagine trying to continue living like we did for the last five.

If you're considering filing separately - don't.

[LadyInTheRed]

I am sorry you had to learn these lessons the hard way and that you didn't get more thorough advice from your attorney. Thank you for sharing it so that it may help others.

Are you certain #2 is correct? I found this case that says it is not true: http://caselaw.findlaw.com/nc-court-...s/1042671.html It is a North Carolina case and is 17 years old, so it is possible that current law in the 9th circuit is different. But, I couldn't find anything that contradicts it. It may be worth some research. While the statute of limitations was tolled (stopped) during your BK, unless the law in CA is different than stated in this case, it would pick up again where it stopped, without being "restarted" by the trustee's payment. So, if there was two years left on the SOL when you filed BK, then there would be 2 years left when automatic stay ceased (at discharge, I believe). If you get to a point where the SOL will have expired if not restarted by the trustee's payments, this could be very important. If the law is unsettled in California, it may be worth testing.

Have you tried settling with the creditors? If your husband has no separate property and you point that out, it may help encourage them to settle for pennies on the dollar.

Has your husband considered filing BK? I know the last thing you want is another 5-year BK, but it may not jeopardize his security clearance. Here is some research I did on the topic after seeing the question come up so often: http://www.bkforum.com/blogs/ladyinthered/1005969-

There are some very limited circumstances where somebody might file separately and not encounter these problems. I am one example. All of my debt was incurred before I was married, so I filed without my husband who had no debt at all. I've been discharged for close to 2 years and nobody has tried to pursue my husband. But, it probably helps that his name was not on any of my accounts.

[Jaded49]

LadyInTheRed,

Thank you so very much. Both links were very helpful and had very good information. We did meet with a different attorney. (We used a BK mill last time.) I may have misunderstood what he said about item 2. I do know that he did specifically say that those creditors that were partially paid by the trustee were more likely to pursue collections. I'm not sure why that is.

It sounds as if the new attorney is recommending that we settle and has requested more information from us. However, I've been such an emotional mess - even if it's 50%, it's such an unfathomable amount for us. (Especially when the last five years were so hard, and I kept myself going by focusing on the fact that the mess was almost over.)

I'm so glad to hear that there are circumstances where filing separate works - especially in your case :-) I still wanted to caution those that are considering it of the potential issues. When I filed originally, I did no research and blindly heeded to the poor counsel that I received.

Thank you again.

[LadyInTheRed]

Keep in mind that most of the creditors are now probably companies that purchased the debt from the original creditors. Most creditors sell the debt as soon as you file BK. So, they can take a very small settlement and still make money. Think about what the most is you can afford, and have your attorney make an initial offer that is less than that amount, even if it is only 5% of the amount due. See what the counter offer is.

I am glad you are working with a new attorney. Good luck and let us know how it goes!

[despritfreya]

I live in a community property state. . . I filed chapter 13 but we did not include my husband. . . My attorney advised that a chapter 13 along with a security clearance would be the kiss of death for my husband's job. . . Well, discharge day came. Within five days creditors began hounding us. It ends up that there is still approximately $120,000 in unsecured debt remaining under my husband's name.

I have said this before and I will say it again. There are very few reasons not to include both spouses. The security clearance issue could be one however, I have dealt with the issue before and have never had a client have a problem. The last client with this issue filed bk while in the process of getting a higher clearance. It was not a problem. Governmental agencies cannot discriminate solely because an employee files a bk and governmental agencies tend to be very careful on this point so long as the employee discloses the issue. At least such has been my experience with my clients.

Although we are in a community property state, a judgment and collection attempts can still be made against my husband. They might not be able to collect, but this still wreaks havoc on our lives, his credit and in our case his employment (security clearance requirement).

Absolutely correct. Your husband did not eliminate his sole & separate liability. Any creditor can sue him but, so long as you remain married, that creditor cannot collect against community property (wages for example).

When the trustee makes partial payments to some of the creditors, this restarts the statute of limitations.

Lady's comments I believe are more likely correct. Payments by the Trustee alone should not revive an otherwise stale obligation. What might revive it is an acknowledgment by you that the obligation is "valid". By not marking the claim as "disputed" you potentially have acknowledged the debt but I have not researched this therefore I cannot say for sure.

Although we both had the benefit of the stay while the discharge was active, this too prolongs the statute of limitations.

Maybe not quite correct. Read 11 USC 108( c ). SOL that expires during the course of a bk is extended for 30 days after the lifting of the stay - the co-debtor stay in your case (see also 11 USC 1301). My understanding of this provision is that the SOL is not tolled but for this small window.

As to what to do. You husband can defend any law suit based upon the SOL assuming that defense is valid. He can do nothing since you are still married and a judgment against your husband is probably worthless. He can try to settle with the creditors as they come knocking. He can file a bk. Regardless, this is not the end of the world since he has options.

Des.

[Jaded49]

Thank you both Lady and Des. Good info! I sincerely appreciate your input. I will definitely be checking out 11 USC 108( c ).