Bankruptcy & Litigation Series: #2 My Ex is filing Bankruptcy!

While we have previously posted about the many issues that can arise when a bankruptcy happens at the same times as a divorce, what happens if a bankruptcy is filed after the divorce is final?

If a Bankruptcy action is filed immediately after the divorce becomes final it is possible for the Bankruptcy Court to undo the Agreement or Judgment of the Divorce Court if it appears the parties were attempting to defraud creditors (for instance if all of the assets were transferred to the non-debtor spouse rather than split equitably).  If the division is equitable, though, then it is unlikely that the Bankruptcy Court would want to revisit the divorce division.

However, the debtor might be bound to make payments in the divorce case which could affect eligibility for bankruptcy, and might have made promises to divide property that is now an issue. Domestic Relations Orders are non-dischargeable in most cases and therefore the decisions made in a divorce settlement, will have significant impact on what can and can't be discharged in the bankruptcy. There are three main areas where a bankruptcy can affect or be affected by a divorce judgment:  property division issues, support issues, and joint debts.

Property Division Issues in a Post-Divorce Bankruptcy:

If a divorce judgement requires that certain property be transferred from the debtor to their ex-spouse then the bankruptcy could affect that transfer.  If the transfer is made within 1 year prior to the bankruptcy then this could be considered a transfer to an insider and if it is not for fair value (for instance if the property division was not equitable), then the bankruptcy court can, upon motion of the trustee, require that the property be returned to the debtor's estate.

If the transfer hasn't been made yet, then that property is included in the debtor spouse's bankruptcy estate and the ex-spouse becomes another creditor of the estate.  Whether they take priority or not will depend on the nature of the property to be divided, and whether their claim is a non-dischargable domestic relations order or not.  Domestic relations orders are treated slightly differently for Chapter 7 and Chapter 13 bankruptcies, so the type of bankruptcy that is filed may also affect whether the property transfer is required or not.

Usually a failure to transfer property required by a Divorce Judgment would subject the debtor spouse to a Complaint for Contempt in the Probate & Family Court.  However, the Bankruptcy Court takes precedence and the Automatic Stay prevents creditors (even ex-spouses) from proceeding in other courts without first getting the permission of the Bankruptcy Court.

Support Issues in a Post-Divorce Bankruptcy:

Alimony and Child Support are considered Domestic Support Obligations, which are non-dischargable and must be paid by the debtor in a bankruptcy.  Any child support or alimony arrears are non-discharable in a bankruptcy and take priority over other debts.  In addition, if the family court awards the costs and attorneys fees of collecting alimony and child support in a Contempt action, those debts are non-dischargable as well.  In a Chapter 13, arrears may be paid overtime as part of the plan, but in a Chapter 7 they remain due immediately.

Practically speaking, going through a bankruptcy, might gain a debtor spouse some leeway from the Probate & Family Court in obtaining a payment plan for payback of the arrears, but they will still need to be paid.  If the ongoing support order itself is incorrect or onerous, this cannot be changed in the Bankruptcy Court, but can still be revisited by the Probate & Family Court by the filing of a Complaint for Modification.

If the debtor spouse is receiving child support or alimony this counts towards their income for bankruptcy means test purposes.  If it is owed but is not being paid then it does not need to be included, though the arrears may be an asset that should be listed.

Joint Debt Issues in a Post-Divorce Bankruptcy:

Post-Divorce there may be debts for which both parties are liable to the creditor but one or the other party has agreed (or been ordered) as part of the divorce to pay these debts.  Some typical examples of joint debts are home mortgages, joint credit cards, joint tax debt, and co-signed car loans.  If a joint debt is not paid off in the divorce, then from the creditor's perspective it is still owed by both parties.  If the divorce judgment requires one spouse to pay the debt and they do not make payment, it will affect both spouse's credit and the creditor can come after either or both of them to collect.  The spouse who was supposed to be protected in the divorce can likely file a Complaint for Contempt against the other spouse but this won't undo any credit damage and doesn't stop the collection action by the creditor.

In a Bankruptcy, the debtor is required to list co-debtors and the Bankruptcy Court can discharge debts to the third party creditor.  Whether or not the obligation of a debtor spouse to their ex-spouse is also discharged will depend on whether or not it is considered a domestic support obligation or non-dischargable domestic relations order.  It is likely important for the ex-spouse to participate in the bankruptcy and file a Proof of Claim if they believe there is an obligation to them as well as the creditor.  However, it is also important to note that even if a debt is non-dischargable, as a practical matter it may still be difficult to collect.  A debtor with no assets, found in Contempt in the Probate & Family Court, may not be able to pay the joint debt and the creditor will still pursue the non-bankrupt spouse.  It is therefore important to anticipate potential issues such as this at the time of the divorce, especially if it is obvious that one spouse's budget will not allow them to pay the bills they are agreeing to pay.

My Firearms License Application was Denied. Can I appeal?

There are two categories of reasons your application for a firearms license may be denied.

An application for a License to Carry Firearms will be denied if you are disqualified under the terms of M.G.L. c. 140, s. 131. Generally, if you have been convicted of any crime punishable by more than 2 1/2 years in prison, been convicted of a violent crime or crime involving firearms, controlled substances, or any other felony, you are ineligible to obtain a license to carry firearms (LTC). You may also be unable to obtain an LTC if you have been treated for substance abuse addiction, or been confined to an institution for mental illness.

However, even if you have not been convicted of a disqualifying offense, the Chief Law Enforcement Officer in your town must still subjectively determine that you are "suitable" to possess firearms. Even if you are statutorily eligible to obtain an LTC, if the police chief finds you "unsuitable", your license will be denied. The Chief Law Enforcement Officer may consider nearly any evidence at his or her disposal, including police reports, court records that did not result in convictions, sealed records, the applicant's truthfulness on the application, and a number of other subjective factors.

Appeals to District Court

A denial made on the basis of "suitability" must be challenged in the District Court where the applicant resides. The burden of proof is on the applicant to prove that the chief's decision to deny the license to carry firearms was "arbitrary and capricious".

Appeals to the FLRB

A denial made on the basis of the applicant's statutory ineligibility may, in certain cases, petition the Firearm License Review Board for a determination that the conviction is not to be considered a statutory barrier to obtaining the sought after license. The FLRB only has the authority to review certain misdemeanor convictions, and the burden of proof falls on the petitioner to demonstrate that the disqualifying conviction does not impact their suitability to possess a firearm.

It is important that you understand that the Firearms Licensing Board (FLRB) has the authority to review only misdemeanor convictions, and that the FLRB may not review convictions for:

a) an assault or battery on a family or household member, or a person with whom you have had a substantive dating relationship, as defined by G.L. c. 209A, § 1;

b) a crime involving use, possession, ownership, transfer, purchase, sale, lease, rental, receipt or transportation of weapons or ammunition for which a term of imprisonment may be imposed; or

c) a crime regulating the use, possession or sale of controlled substances.

In addition, the statute specifies that the FLRB may not review a petition if the petitioner:

a) has a disqualifying felony conviction;

b) has multiple misdemeanor convictions, unless the offenses arise from one incident;

c) was denied a license to carry on the basis of suitability rather than a disqualifying conviction (the District Court is the appropriate forum for appeal in this case); or

d) is disqualified for a reason other than a misdemeanor conviction, such as having an active warrant or restraining order.

Finally, the FLRB may not review a petition until after the passage of five (5) years since the misdemeanor conviction or release from supervision, whichever is last occurring.

Also note that a decision by the FLRB in the applicant's favor does not automatically grant a firearms license - the chief of police may still exercise his or her discretion with respect to the applicant's overall suitability. The FLRB can only grant state relief to the issue of statutory ineligibility

Can a "Federally Prohibited Person" still obtain a Massachusetts FID Card?

An applicant seeking to possess certain firearms in Massachusetts may obtain a Massachusetts Firearm Identification Card (FID) even if they have been previously convicted of certain offenses. Under state law, as long as at least five years have passed since the completion of the imposed sentence on certain non-violent felony offenses as either an adult or juvenile; convictions for the use, possession or sale of controlled substances; conviction of certain non-violent misdemeanors punishable by imprisonment for more than two years; or the conviction under any law relating to weapons or ammunition for which imprisonment may be imposed, the Commonwealth of Massachusetts shall issue the applicant a Firearms Identification Card.

However, an applicant with any criminal record should proceed extremely cautiously. Even though Massachusetts has issued an FID, the possession of a firearm by certain individuals convicted of the above offenses may still be federally prohibited from possessing firearms, and doing so is a crime punishable by up to ten years in federal prison.

Every time you purchase a firearm from a licensed dealer, the dealer will complete a form ATF 4473, and will perform a NICS check with the FBI to ensure you are not a "Federally Prohibited Person" as defined in the Brady Handgun Violence Prevention Act (18 U.S.C. § 922(g)). The information supplied on form ATF 4473 will be run through millions of electronic records in state and federal databases to see if the person trying to buy the firearm meets one of nine different categories of reasons for which federal law would prohibit them from being in possession of a firearm. Under federal law, the conviction of many of the crimes described above will create a permanent federal prohibition on firearms ownership.

Should the instant records check discover information which establishes you are ineligible to possess a firearm, your transaction will be denied (i.e., you can't purchase the gun), but the story does not end there.

A Brady denial means it is illegal for you to be in possession of any firearms, even those you already own at home, and even if you were able to obtain a Massachusetts FID Card. If you want to avoid possible seizure and forfeiture of your guns, get them into storage with either an FFL or transferred to a friend or relative who you know is legal to possess firearms and who agrees to hold them and not let you have them until your situation is resolved. You may need to memorialize this transfer on an FA-10 or E-FA-10, if you are in Massachusetts.

Once you get your guns safe and receive the statement of reasons for your denial, you should contact an attorney who is familiar with the field of firearms law.

Median Family Income Figures for Chapter 7 Qualification Rise April 2013

Every six months the United States Department of Justice releases new Median Family income figures for each state and territory. These figures are used to calculate a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If a debtor's income is greater than the median income for their state of residence and family size, they many not be able to file a Chapter 7 bankruptcy case.

The Means Test calculation compares the average monthly income (as calculated over the last six (6) months) to the median family income in a debtor's state for a household of their size. If the average monthly income is lower than the median family income for the debtor's state of residence and family size, then they pass the means test and there is a presumption that they may file for Chapter 7 relief.

The Median Family Income for Massachusetts as of November 1, 2012 were as follows:

Family size 1: $54,475 per year
Family size 2: $66,076 per year
Family size 3: $80,822 per year
Family size 4: $101,523 per year

add an additional $7,500 per year for each additional household member.

These figures went down slightly in each category from these figures.

The Median Family Income for Massachusetts as of April 1, 2013 are as follows:

Family size 1: $55,602 per year
Family size 2: $67,443 per year
Family size 3: $82,495 per year
Family size 4: $103,624 per year

add an additional $8,100 per year for each additional household member.

If your income is greater than the median income for your state of residence and family size, you still might meet part (b) of the means test after taking into consideration certain expenses as defined by the Bankruptcy Code and other deductions, including regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health Insurance. If you are subject to this calculation an attorney can help you perform this task.

Click here to learn more about The Means Test or use our Means Test Calculator.

To have an attorney help you with these calculations call 508.655.5980 to schedule a consultation or e-mail us here.

Bankruptcy & Litigation Series: #1 Divorce

When a bankruptcy is filed, the automatic stay precludes creditors from proceeding in lawsuits against the debtor. If a bankruptcy is filed during a divorce case, the automatic stay applies to the divorce case as well.

The divorce Judge may proceed on issues of child support, alimony and custody of children, but may not make any decisions relating to the division of assets and debts without the permission of the bankruptcy court, and any decisions made by the divorce Judge are reviewable by the bankruptcy Judge.

Therefore, it is very important to consider the right timing of a bankruptcy and a divorce when a client will likely have to go through both process.

Filing Divorce First: Finishing the divorce action before beginning the bankruptcy filing allows the divorce action to proceed to its natural conclusion without interruption by the bankruptcy court. It is still possible, though, for the Bankruptcy Court to undo the Agreement or Judgment of the Divorce Court if it appears the parties were attempting to defraud creditors (for instance if all of the assets were transferred to the non-debtor spouse rather split equitably). Despite this risk, it is unlikely if the division is equitable that there would be any issue, and both cases would like proceed more smoothly one after the other, rather than simultaneously.

However, the debtor might be bound to make payments in the divorce case which could affect eligibility for bankruptcy, and might have made promises to divide property that is now an issue.  Domestic Relations Orders are non-dischargeable in most cases and therefore the decisions made in a divorce settlement, will have significant impact on what can and can't be discharged in the bankruptcy.  This is even further complicated by joint debts.  It's therefore important to have bankruptcy counsel review a potential divorce settlement prior even if the intention is to complete the divorce case first.

Filing Bankruptcy First: Likewise, there are certain circumstances where it might make more sense to file for bankruptcy prior to filing the divorce. For instance in a case where both spouses had significant debt, they can file as joint debtors so long as they are still married. Even if only one of the parties intended to file, there is a case which suggests that some of the protections for the debtor extend to the non-debtor spouse (protections that might not apply if the parties are already divorced).

The facts of each case will control whether it makes sense to file the bankruptcy or divorce first.  If you are assisting a client with a divorce case but don't have expertise in bankruptcy we recommend reviewing your strategy with an attorney trained in bankruptcy.  The terms of the proposed property settlement or transfers of property under the agreement may be hurtful to your bankruptcy case if your client plans on filing for bankruptcy shortly after the conclusion of the divorce matter. These issues are even more complicated when a Chapter 13 plan is in place, because a divorce can cause problems with making plan payments.  Having an attorney that can explain the bankruptcy consequences of the decisions made during the divorce will be critical in helping your client get a fresh start.

Bankruptcy & Other Litigation: A Ten Part Series

A bankruptcy case can impact other litigation in many ways.  Some cases will be halted automatically by the filing of a bankruptcy due to the automatic stay.  Others might not be stopped, but might not be controlled by the bankruptcy trustee.  And some cases may not be affected at all.  Navigating these interactions can be difficult even for attorneys who are experts in other areas of the law if they don't practice in the bankruptcy court.

The next ten posts will outline how bankruptcy cases can interact and may affect different types of litigation.  In the following posts we will cover how a bankruptcy case can affect or be affected by these types of cases:

#1: Divorce
#2: Post-Divorce
#3: Collections - Plaintiff Bankruptcy
#4: Collections - Defendant Bankruptcy
#5: Evictions - Landlord Bankruptcy
#6: Evictions - Tenant Bankruptcy
#7: Foreclosures
#8: Personal Injury & Torts - Plaintiff Bankruptcy
#9: Personal Injury & Torts - Defendant Bankruptcy
#10: Criminal Cases

Expanding the Discussion about Your Freedoms

While it may seem obvious to those of us who live here and sometime take our freedoms for granted, what makes the United States of America such a great place to live is that the design of our government and legal system is based on the protection of freedoms.  The founding fathers recognized, because of their recent violent fight with a tyrannical government, that authority will always seek more authority over the governed.  Therefore, the only government that stood a chance of respecting the freedoms of individuals was one built first on principles that outlined those freedoms.

In the past, this blog has concentrated primarily on debt relief and bankruptcy.  While you might not necessarily associate that subject with other fundamental freedoms, bankruptcy is one of the oldest laws in the United States, and was included in the original 1787 draft of the U.S. Constitution. In fact, the originating language is older than the Bill of Rights. The Founding Fathers recognized that a system of laws was necessary to protect the “honest but unfortunate debtor”, and such laws were in the general interest of the country and its citizens.

While we will continue to cover bankruptcy news and provide information about options for obtaining financial freedom, we will also begin including posts on this blog specific to other freedoms provided for by our Constitution and Bill of Rights.  We hope that you continue to frequent our site for news about financial freedom, criminal defense rights and protections, and freedom from infringement on the individual right to bear firearms.  We also invite you to leave your thoughts and join the debate in the comments section of our posts.

Many people are proud to stand up for, and take advantage of, their constitutional protections – and they should be. From its original incarnation and its amendments over the years, such protections have become the cornerstone of our society, our government and our way of life.