Divorce and Bankruptcy: A one, two punch

[phoenix44212]

I've been reading this blog for some time now and appreciate everyone sharing their experiences and knowledge.

I'm currently going through a, shall we say, slightly "contentious" divorce.

We are still living in the same house and we share the major expenses: mortgage, second, most utilities. Phone, cable, internet are randomly, or never, paid by her. The house and second are joint, as are (2) 2006 Ford Taurus program cars we purchased last year. We're current with the mortgage but slightly behind on the second. I now have around $38K in CCs in my name only which I've given up on paying even the minimums. It was a slow process since last November. I'd not pay one card and pay the rest, then not pay 2 cards and still pay the rest, etc....... She also decided not to help with the expenses for her only (high school aged) daughter.

I've started meeting with BK attorneys. The first thought Chapter 7 would be feasible but felt it was best to file after the divorce is final. I know I had a difficult time determining how to do the means test in my current situation.

I am establishing new priorities; budget, housing after divorce, insuring my daughter's financial future. In actuality, I feel more at peace now than I ever did before. I always felt we couldn't afford the house we had and a lot of the credit card debt was for the family (I don't live in a community property state). Sorry to be verbose, just trying to paint a picture.

If everything goes well I may be out of the house in December (my daughter turns 18 and her custody will no longer be an issue with my dear wife). She will be a senior so at that time and since she will be living with me, I will pass the means test easily. I am concerned about the time until then. If I must declare BK before then can I increase my charities to help reduce disposable income, would increasing term life insurance costs be inappropriate? Are divorce attorney costs ever considered reasonable or necessary (just joking)? Should I consider Chapter 13 to get into a house sooner?

Thanks in advance.

[SinkingFast]

About legal fees being included as an expense,..........

Our paralegal told me they had another client,............ I don't know what the person did, but,.............. He/She was on house arrest for something. Our attny included the legal fees for whatever problem that person had as an expense. The paralegal told me the UST questioned the attny's fees and such. But all they had to do was show documentation and the issue was resolved.

Maybe you can claim the divorce legal fees as an expense. Definitely a Q for attnys as you Consult with them.

Filing during Divorce can be done if the Divorce is amicable with both parties agreeing who gets what and is responsible for what debts. In your case, it sounds like it would probably be best to wait until you have a Decree stating the division of the Marital Assets and Debts.

As far as pre BK expense planning goes,..............

Charitable contributions, the Court likes to see continuity. If you've always been giving 10%, keep giving 10%. It's a recognized expense.

Check your Exemptions to see what the allowable is for Life Insurance. If you don't have something like a $100K cap, or other stated figure, then you could take on more Life Insurance. Since you are getting divorced and will have custody of a child, it would seem reasonable to advance plan for the benefit of your heir.

Other things to look at are Doctor's visits, Dentist's visits, Eye Doctor and glasses/contacts. Need some clothes?? Stock up on TP, paper towels, things that won't go bad. New bed and bath linens. Etc. Think in terms of what looks reasonable in the normal course of daily living. Don't go to extremes in any one area.

If you're hoping to file a Ch 7, you'll definitely wanna get that 2nd caught up and current. That is, unless you're gonna surrender the house. If you wanna keep the house, you have to be current on the mortgages when you file for Ch 7.

[phoenix44212]

Thanks. It's nice to hear from someone's whose been there.

I'd like not to have to file until December. That way I can easily pass the means test, continue to pay my inexpensive d divorce lawyer and build up some cash for bk attorney's fees, rent security deposits etc. I will ask the question about the legal expenses for divorcing. I'm also switching my budgeting system to the envelope system. I've increased my exemptions to increase my take home pay and may consider stopping my 4% retirement contribution to free up even more cash. (I am a little concerned about not owing the IRS at the end of the year and have done numerous calculations).

For continuity with the charitable organizations will they just be looking back the 6 months or longer? To be honest I'd like to increase my small donations (2%) to the 10% level. Even with all this I am relatively well off compared to others. I also find no cap for term life insurance and am only looking at a $250K policy (hope it's enough).

Will paying token payments to the bigger credit cards help in staying their actions until I'm ready to file? In my case, for 3/4 of them a normal payment is less than $15 dollars. It's the other 1/4 that have large (for me) minimum payments. Will the trustee really look at actual expense records? It will be hard to "save" up for all the upcoming bills if I actually have to spend all that "I should" in a normal budget.

[SamanthaJones]

Are you sure you want to stop your retirement fund?

For one thing it's not recommended, for future security's sake, and another- it decreases your disposable income, no?

[lrprn]

I've increased my exemptions to increase my take home pay and may consider stopping my 4% retirement contribution to free up even more cash. (I am a little concerned about not owing the IRS at the end of the year and have done numerous calculations).

Don't stop your retirement contributions - they are protected in bankruptcy. Converting them to cash makes a protected asset into an unprotected one. Carefully adjust your withholdings throughout the year instead - "How Do I Adjust My Tax Withholdings?" at http://www.irs.gov/pub/irs-pdf/p919.pdf makes this much easier.

For continuity with the charitable organizations will they just be looking back the 6 months or longer? To be honest I'd like to increase my small donations (2%) to the 10% level.

If you are going to do this, do it now to show as many months as possible of contributing at this level as you can before filing.

Will paying token payments to the bigger credit cards help in staying their actions until I'm ready to file?

No. The automated credit card payment recording by the cc companies does not allow for partial payments. It's the full payment or nothing as far as on-time payments go. Don't waste your money.

Will the trustee really look at actual expense records? It will be hard to "save" up for all the upcoming bills if I actually have to spend all that "I should" in a normal budget.

Only if what you claim is outside the norm for your community. Our Ch 13 trustee questioned our medical expenses during our 341, but when we explained our situation (both of us have chronic health conditions that require expensive medications and regular doctor visits), that was the end of that. When you do file, you want to use the living expense averages for your community, not what you've actually been spending. See http://realestate.yahoo.com/Neighborhoods to find out what some of those averages are for your local area. When you retain a bk lawyer, they should be familiar with what dollar levels will fly in your district and what will not.

[SinkingFast]

First,........... Don't drop your 401K contributions. Generally speaking, modest 401K contributions, up to 5% or so, are acceptable deductions from your gross pay. AND 401K's are Exempt in BK. All the money you have there will be protected.

How to get the money to pay your attny and filing fees and when to stop paying CC's is a tough one for everyone. Some Creditors are more aggressive than others. Plus, you have to contend with the "$600 in payments during the previous 90 days" issue as well.

Generally speaking,............. You can easily get 6 months of no payments before anything will happen. That's generally speaking. There have been people here sued in less time than that. Many, however, us included, went a year or more between stopping payments and filing.

CC's tend to go thru a process. 2-3 months in regular customer servicing. Move your acct to Internal Collections for 2-3 months before placing the acct with a 3rd party collections agency.

BUT, Creditors aren't stupid either. They won't toss away good money going after bad. They'll check your Credit Reports to see how much you owe cumulatively and if you're making payments to other Creditors. They'll check to see if you own property worth attaching a lien to. Are your wages worth a Wage Garnishment Order. Do you have sizable checking and/or savings acct balances worth going after with a Banking Institution Garnishment.

The best thing to do is get out and Consult around. Find the attny you're comfortable working with. Get your fees paid and your docs on file. Then wait. That way, you're ready to go on a moment's notice if need be.

Here's a link for you to help with calculating your paycheck withholdings:

http://www.irs.gov/individuals/artic...=96196,00.html

In Post #20 of this thread is a link to an Expense Calculator:

http://www.bankruptcyforum.com/showt...t=11356&page=2

For some reason, the CA-BK-Attnys website isn't working right now. Hopefully it will be later.

[phoenix44212]

I like the suggestion of having everything in the hands of the attorney and ready to file on a moments notice. Although some things may change at least the majority is done. I will continue looking around, and ask more questions of the attorneys.

I've tried researching the 403b (in my case) contribution issue but most places say that it isn't permissible but those are with the old law. Has anyone had experience with continuing contributions. Is 5% usually acceptable? I also have a loan on the retirement fund. Do I combine the two to get an acceptable % for the court?

Thanks, you've helped tremendously.

[lrprn]

I've tried researching the 403b (in my case) contribution issue but most places say that it isn't permissible but those are with the old law. Has anyone had experience with continuing contributions. Is 5% usually acceptable? I also have a loan on the retirement fund. Do I combine the two to get an acceptable % for the court?

We are in Ch 13, so I don't know if what we've experienced will carry over into Ch 7. Hubby is in your same situation - monthly 403b contributions with existing loans against his retirement account as well.

Our lawyer recommended we file with the payments for the six retirement loans showing in our expenses plus our continued monthly contributions to our retirements included as well. Our Ch 13 trustee filed an objection to our being able to both pay back the loans and continue to contribute to retirement since combined it put us above the allowed 10% of gross income level allowed for retirement contributions in our bk district.

We had a pre-trial hearing with our district bk judge last October and at that time he stated unofficially that he felt this could be allowable. At the moment we remain in limbo until our trustee decides whether to get an official ruling from our judge by scheduling a hearing in court. Until we hear one way or the other, we keep paying on the retirement loans every month plus contributing to each of our retirements.

[tay666]

I keep hearing that it is better to get the divorce first then do the bankrupcy.
Why?
Wouldn't it make the divorce easier if all the financial stuff is cleared up in a BK first?
I am starting to get the impression that my wife may be thinking just that.
Nothing certain, just seems like it.
Get all the bills wiped out, surender the house.
Then we just have to divy up our stuff.