BANKRUPTCY AND DIVORCE PITFALLS by Flint Divorce Bankruptcy Lawyer Terry Bankert 235-1970

My observation that language in a divorce judgment are done quickly, sloppily and by the uniformed. What are the implications of one spouse being in bankruptcy immediately after a divorce?

This article posted by Flint Genesee Bankruptcy Lawyer Divorce Attorney Terry Bankert 235-1970  www.attorneybankert.com 07/30/13

Regardless of the magic language used we have to be aware of what are called  avoidance issues if one spouse files bankruptcy immediately after a divorce.

Your attorney , and most will not know,  needs to remember that if one spouse files bankruptcy, he or she (or the bankruptcy trustee) will be able to use “avoidance powers” to undo what the divorce counsel and the parties negotiated.

There are several steps that you and your divorce attorneys should take to avoid this pitfall:

1. Be familiar with  11 USC 548 and the Michigan UFTA, MCL 566.31 et seq., and be aware of the so-called “badges of fraud,” some of which are itemized below in MCL 566.34(2).
2. 566.34 Transfer with intent to defraud.Sec. 4.(2) In determining actual intent under subsection (1)(a), consideration may be given, among other factors, to whether 1 or more of the following occurred:
3. (a) The transfer or obligation was to an insider.
4. (b) The debtor retained possession or control of the property transferred after the transfer.
5. (c) The transfer or obligation was disclosed or concealed.
6. (d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
7. (e) The transfer was of substantially all of the debtor's assets.
8. (f) The debtor absconded.
9. (g) The debtor removed or concealed assets.
10. (h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
11. (i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
12. (j) The transfer occurred shortly before or shortly after a substantial debt was incurred.
13. (k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
14. Courts use those badges of fraud, and others distilled from caselaw, to determine the existence of “actual intent to hinder, delay or defraud creditors.” Bankruptcy’s fraudulent transfer statute, 11 USC 548, is similar to the Michigan statute, but it does not contain a statutory description of the so-called badges of fraud.
15. In any settlement, divorce your attorney  should structure transfers in a way that reduces the chance that they will get avoided as either a fraudulent transfer or a preference. For example, mutual transfers, concessions, and promises given in reaching a consensual property settlement should be stated so a court is less likely to find that a transfer was made for less than reasonably equivalent value (which is the threshold for a constructively fraudulent transfer under both 11 USC 548 and MCL 566.31 et seq.). I see this language in less that 5% of the divorce judgments prepared by other counsel.
16. Your Divorce attorneys should record or perfect whatever liens or security interests are granted as soon as possible. If the liens or security interests are not recorded as of the date one spouse files bankruptcy, the debtor or a bankruptcy trustee will be able to avoid them using 11 USC 544. If the liens or security interests were recorded within 90 days before the bankruptcy (1 year for insiders), the debtor or trustee may be able to avoid them as preferences.

DOMESTIC SUPPORT ORDERS , DSOs , are nondischargeable in all bankruptcies that an individual can file. The definition of DSO includes anything that is in the nature of alimony, maintenance, or support and is nondischargeable, irrespective of the label it has been given.

Consequently, whenever a debtor spouse or his or her bankruptcy trustee seeks to take action that would impair the rights of the non debtor spouse, that non debtor spouse should consider whether the obligation or property is really in the nature of alimony, maintenance, or support. If so, the non debtor spouse will have a DSO where the Bankruptcy Code provides much more protection.

The power of the automatic stay stops all legal action against your property when a bankruptcy is filed. If a divorce is not final as of the date one spouse files for bankruptcy, the automatic stay imposed by the Bankruptcy Code stays the divorce proceedings. Unless one party moves to lift the stay so the divorce proceedings can continue, the divorce will be frozen until the bankruptcy case is concluded. This is the case for any pending appeals of divorce judgments as well as spousal or child support award appeals.

Sphere: Related Content

Flint Child Custody and Bankruptcy from Terry Bankert 235-1979

GOOD MORNING FLINT! date: 01/22/13
-----
By Terry R. Bankert [trb] terry@attorneybankert.com
www.attorneybankert.com , https://www.facebook.com/attorneybankert, Flint Divorce & Bankruptcy 810-235-1970

Issues:

Interstate custody action; Whether the trial court had jurisdiction to modify the Arizona order under MCL 722.1203;

The Uniform Child Custody Jurisdiction and Enforcement Act (UCCJEA) (MCL 722.1201 et seq.); International Union, UAW of Am. v. Central MI Univ. Trs.; Jamil v. Jahan; Fisher v. Belcher; In re Clausen; Atchison v. Atchison; MCL 722.1202; MCL 722.1102(c);

The UCCJEA prescribes the powers and duties of a court in a child custody proceeding
involving a Michigan court and a Sister State’s custody order. Fisher v Belcher, 269 Mich App
247, 260; 713 NW2d 6 (2005). The UCCJEA is a procedural statute. In re Clausen, 442 Mich
648, 681-684; 502 NW2d 649 (1993). This case falls under the purview of the UCCJEA because
it involves an attempt to modify an Arizona child custody order in Michigan.

Court: Michigan Court of Appeals (Unpublished)
Case Name: Burnham v. Burnham
e-Journal Number: 53598 [primary source]
Judge(s): Per Curiam – Stephens, Owens, and Murray

MICHIGAN COULD MODIFY ARIZONA ORDER BUT GRANDFATHER CANNOT PLEAD TO COURT.

Although the court held that the trial court had jurisdiction to modify the Arizona order under MCL 722.1203, it also held that the plaintiff-maternal grandfather did not have standing to challenge the custody order.

Thus, the court affirmed the trial court's grant of the defendant-mother's motion for summary disposition in this interstate custody action.

The case arose from a 2010 Arizona custody order that granted defendant full custody of the minor child.

Plaintiff had custody of the child until 2010, when he relinquished custody to defendant.


After the Arizona custody order was issued in 2010, defendant moved with the child to Michigan, where they have lived ever since.

In 2012, plaintiff filed a custody complaint in Michigan pursuant to the UCCJEA, seeking to modify the Arizona custody order.

Defendant moved for summary disposition, arguing that plaintiff lacked standing to challenge custody.

Plaintiff argued that the trial court erred in granting defendant's motion for summary disposition by incorrectly holding that he lacked standing to challenge custody over the child. Plaintiff's argument was premised upon the assertion that the trial court had jurisdiction under the UCCJEA, and in particular under MCL 722.1201(1)(a), because it was the home state of the child at the time the complaint was filed and neither the child, the mother or father, nor for that matter plaintiff, remained in Arizona.

UCCJEA


The case fell under the purview of the UCCJEA because it involved an attempt to modify an Arizona child custody order in Michigan

2010 ARIZONA ORDER


The Arizona court issued an initial custody decision on 7/26/10. The order was issued in a dependency proceeding, which is considered a child-custody proceeding under the UCCJEA.

The Arizona custody order awarded "the minor's legal care, custody and control" to defendant. Because Arizona issued an initial custody determination over the child, Arizona had exclusive, continuing jurisdiction.

However, because plaintiff was attempting to modify the Arizona custody order in Michigan, the court determined whether Michigan had jurisdiction to modify the order.

HOW DID MICHIGAN GET JURISDICTION OR THE RIGHT TO HEAR THE CASE


Under the specific requirements of the UCCJEA, the trial court clearly had jurisdiction over the complaint.

First, Michigan was the child's home state on the date of the commencement of the proceeding because he and his mother lived in Michigan for more than a year before the complaint was filed.

Second, the child and defendant no longer resided in Arizona.

Thus, the trial court had jurisdiction to modify the Arizona order under MCL 722.1203.

Despite the trial court's ability to exercise jurisdiction over the child, it dismissed plaintiff's complaint, finding that he lacked standing to challenge custody because he was a third party.

EVEN WITH JURISDICTION THE MICHIGAN COURT COULD DECIDE NO TO HEAR THE CASE.

Even with this statutory jurisdiction, a Michigan court may still not modify a child
custody determination made by a court of another state unless either (1) the court of the other
state determines it no longer has exclusive, continuing jurisdiction or that the Michigan court
would be a more convenient forum, or (2) the Michigan court or a court of the other state
determines that neither the child, nor a parent of the child, nor a person acting as a parent,
presently resides in the other state.
Jamil, 280 Mich App at 101, citing MCL 722.1203. As
noted, it is undisputed that neither the child nor either parent, nor any person acting as a parent,
remain in Arizona.


The court held that "a conclusion that jurisdiction exists is not the equivalent of finding that the party invoking the court's jurisdiction has standing to maintain the complaint." The court held that UCCJEA does not confer standing on a party, and so the fact that jurisdiction exists for a court to act on a complaint did not mean plaintiff can maintain an action to modify custody.

The court also held that under Michigan law, which governs the trial court's substantive analysis once it exercises its jurisdiction and turns to the merits of the complaint to modify, plaintiff lacked standing to seek a modification of custody. [Plaintiff was a grandfather]

WHAT IS A BANKRUPTCY 341 HEARING
Purpose of Meeting and Procedure
The purpose of the 341 meeting is to allow the trustee or any party in interest to ask questions relating to the financial affairs of the debtor while the debtor is under oath. The 341 meeting is often the first official meeting for all parties involved in the bankruptcy case. The trustee, the debtor, and debtor’s counsel (to the extent the debtor has retained counsel) are required parties. The location of the 341 meeting will be disclosed on the Notice of Chapter 7/13 Bankruptcy Case, Meeting of Creditors, & Deadlines. Most 341 meetings are not conducted in a courtroom and the judge is not present. The trustee will typically be seated at a table in the front of the room. There will be seats available for the debtor, debtor’s counsel, and creditors.
The trustee will call the case and the debtor and debtor’s counsel, if any, will approach the trustee. If a creditor intends to ask the debtor any questions, the creditor should approach at this time as well. The trustee will place the debtor under oath and then the trustee will ask the debtor a series of questions designed to identify any assets and to verify that the information the debtor provided in the schedules and the statement of financial affairs is accurate.
After the trustee has examined the debtor, the trustee will allow creditors the opportunity to ask questions as well.

Sphere: Related Content

FLINT BANKRUPTCY, STOP CREDITOR HARRASSMENT ,YOUR PERSONAL BAILOUT.

FLINT BANKRUPTCY-Millions of people before you and millions of people after you will cause their own personal financial bailout like the  Banks and Wall Street did. For us little people its what is called a Chapter 7 or Chapter 13 Bankruptcy.

You do not repair  your credit by continuing to slow pay your bills. Its no joke being broke. Bankruptcy is a way out. Call 235-1970 Terry Bankert Flint Bankruptcy Attorney

The most common reasons for filing Flint bankruptcy are:

1. Large medical expenses; Seriously overextended credit; Marital problems,
2. Other large unexpected expenses.
3. Sudden loss of two wage earner family income or overtime

You are not alone others have filed for bankruptcy even professional athletes.

Ever wonder how professional athletes with multimillion-dollar contracts can end up bankrupt?
see: http://blogs.wsj.com/bankruptcy/2012/10/01/pro-athletes-go-broke-in-new-espn-documentary/

In the new documentary“Broke,” which is set to air on ESPN Tuesday 10/01/12 ,evening, director Billy Corben provides a “step by step guide on how to go broke” by talking to the current and former professional athletes who’ve gone broke themselves or have watched teammates and peers drain their bank accounts.


You cannot receive a discharge in a Bankruptcy Chapter 7 case if you received a discharge in either (a) a chapter 7 bankruptcy filed within the last 8 years, or (b) a Chapter 13 bankruptcy filed within the last 6 years.

Chapter 7 bankruptcy, sometimes call a straight bankruptcy is a liquidation proceeding.

The  Flint Bankruptcy debtor turns over all non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts usually within four months. In the vast majority of cases the debtor has no assets that he would lose so Chapter 7 will give that person a relatively quick "fresh start".

Chapter 13 Bankruptcy is also known as a reorganization bankruptcy.  Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts

By law, all actions against a debtor must cease once the bankruptcy documents are filed. Creditors cannot initiate or continue any lawsuits, wage garnishees, or even telephone calls demanding payments. Secured creditors such as banks holding, for example, a lien on a car, will get the stay lifted if you cannot make payments.

Flint Bankruptcy clients ask “Will I ever credit again.”Yes! A number of banks now offer "secured" credit cards where a debtor puts up a certain amount of money (as little as $200) in an account at the bank to guarantee payment. Usually the credit limit is equal to the security given and is increased as the debtor proves his or her ability to pay the debt.

Two years after a bankruptcy discharge, debtors are eligible for mortgage loans on terms as good as those of others, with the same financial profile, who have not filed bankruptcy.

The size of your down payment and the stability of your income will be much more important than the fact you filed bankruptcy in the past.The fact you filed bankruptcy stays on your credit report for 10 years. It becomes less significant the further in the past the bankruptcy is.

The truth is, that you are probably a better credit risk after bankruptcy than before.

see pic.twitter.com/8LZkAhtp

see http://www.facebook.com/attorneybankert

[1]
http://www.bankruptcyhq.com/how-often-can-i-file-bankruptcy

Sphere: Related Content

CAN 1099 TAX OBLIGATION BE DISCHARGED IN BANKRUPTCY?

Will Bankruptcy stop a 1099-C?
Will Bankruptcy negate a 1099-C issued

When you stop paying commercial debts the creditor has the right to  file a  1099-C  for the cancellation or forgiveness of a debt. Bankruptcies are a special case and will stop the issuance of a 1099-C. The theory is that  the amount on a 1099-C represents taxable income to you, the prevention of a 1099-C is one of the added benefits of a bankruptcy discharge. [1]

TERRY BANKERT A FLINT BANKRUPTCVY LAWYER AND FAMILY LAW ATTORNEY 810-235-1970


Therefore If you receive a bankruptcy discharge, the prime benefit is that you do not have to pay your debts with  an added tax benefit of which many debtors are not even aware. The amount of the debt that you discharge in bankruptcy is specifically excluded from your gross income when you file your taxes. In other words discharged debt is not taxable.[1]

Form 1099-C

Form 1099-C is a form creditors use to inform debtors and the IRS of the amount of a cancelled or forgiven debt. While bankruptcy generally stops creditors from sending out this form, in some cases a creditor may send you a 1099-C that indicates the debt was discharged rather than forgiven.[1]

Form 982

Some creditors may send you a 1099-C without the box marked "bankruptcy" checked, even if your debt with them was included in your discharged bankruptcy. In this case, you must file Form 982 with the IRS to indicate that your debt is not taxable. Line 1a of Form 982 allows you to exclude the amount of the discharged debt by indicating that the amount represents indebtedness in a title 11 case. Title 11 simply refers to the section of the U.S. Code that describes bankruptcy, so you can include the amount here regardless of which chapter of bankruptcy you filed.[1]

Cancelled Debt

Do not confuse discharged debt with cancelled or forgiven debt. This is an important distinction because forgiven or cancelled debt is usually taxable. For example, if you negotiate your $100,000 credit card bill to $50,000, you will owe income tax on that forgiven $50,000. If you had instead filed bankruptcy, you probably could have discharged the entire $100,000 without paying tax on any of it.[1]

Debt Forgiveness Is a Taxable Event Pursuant to the Internal Revenue Code & Will Generate a 1099-C[4]
Adding taxable insult to catastrophic financial injury is the fact that “debt forgiveness” will generate a taxable event pursuant to the Internal Revenue Code, §61(a) (12) [Exhibit 1] which succinctly states:
“Gross Income Defined:
“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:[4]
............
(12) Income from discharge of indebtedness.”
This “income from discharge of indebtedness” is routinely referred to in short form as “C.O.D. Income” — “Cancellation Of Debt” Income. The theory is that cancellation of debt is equivalent to either “an accession to wealth”[4] or a freeing of assets; money that would otherwise be used to pay off the debt is available to the taxpayer for whatever the taxpayer chooses.[5]
Particularly problematic is the fact that at the time the debt is “forgiven” there is no automatic generation of a 1099-C.  The “C” in the 1099-C refers to “Cancellation of Debt.
The notice from the financial institution may not arrive at the taxpayers (new) residence until January 31 of the following tax year![4]

A few words of caution: if the debt, or part of it, was canceled before you filed bankruptcy (through debt settlement or negotiation, for example), the creditor must issue the 1099-C unless another exception applies. And that debt is not included on Line 1a of Form 982, because it was not discharged in bankruptcy. As a result, even if you later file bankruptcy, you may owe tax on that debt cancellation income unless you were insolvent at the time you settled it.[3]

You do not owe taxes on 1099’s filed after a bankruptcy is filed. You may owe taxes on debts forgiven before a bankruptcy is filed.

Discharge of Debt in a Bankruptcy Is Not Taxable Income, But Will Apply to Reduce “Tax Attributes”[4]
The simple rule is that Debt discharged in a Bankruptcy case is not considered taxable income. However, the discharge of debt must be pursuant to a valid Court Order, or is incident to “Plan” approved by the Court.[4]
Notwithstanding the intuitive simplicity of the Bankruptcy exception, the IRS will apply the amount discharged in bankruptcy to what is calls “tax attributes”, and mandates the filing of Form 982  which is designed to make sure that there is no tax free windfall to the debtor. The presenter would describe “tax attributes” to be other tax advantages the taxpayer may have, which will be reduced to the extent of the Bankruptcy discharge, and include:

• Net Operating Loss
• General Business Credit Carryover
• Minimum Tax Credit
• Capital Loss
• Basis
• Passive Activity Loss
• Foreign Tax Credit

This is a complex and technical area, which the Family Law attorney or their client, wander at their own peril. This is a compelling reason to follow “Tax Tips Disclaimer—Part B” and retain a qualified C.P.A. to work through these issues on behalf of client.[4]


[1]
http://www.ehow.com/info_7987499_bankruptcy-stop-1099.html


[2]
http://www.ehow.com/info_8776946_got-can-still-sued-debt.html

[3]
http://www.bankruptcylawnetwork.com/in-bankruptcy-dont-fear-the-1099-c/

[4]
8th Anual Family Law Institute 11/12/09,Tax Tips for the Practitioner
By James J. Harrington, III, Law Offices of James J Harrington III PLC, Novi

Sphere: Related Content