Divorce and bankruptcy in San Diego
It’s no secret that we have an extraordinarily high cost of living in San Diego county. It’s also well known that friction over money issues is perhaps the most prevalent common denominator when a marriage or domestic partnership begins to unravel. But what does this all have to do with bankruptcy? And what does bankruptcy have to do with divorce? Read on and I’ll tell you as concisely as I can. Congress re-wrote the Bankruptcy Code back in 2005. They created something called the “Means Test.” The reason this test matters here is that Congress decided each district bankruptcy court would have a test of whether a debtor has the “means” to repay some of his / her / their debt. This all sounds kind of logical until we discover how Congress decided to set the threshold for the “means test”: the statewide median income.
How does this means test apply when you live in San Diego. It is really expensive here.
Statewide? Does anyone in this county think we can live on what our fellow Californians survive on in Lodi? Tracy? Manteca? This sets up San Diego county bankruptcy and divorce parties for a real conundrum: people here have to earn more than the statewide median income just to survive here; and earning more than the statewide median income makes bankruptcy in San Diego so much more difficult. Congress wants these already cash-strapped people to be in a Chapter 13 in San Diego for the next five years instead of in a Chapter 7 bankruptcy in San Diego which they could complete in about three months.
Divorce can promote bankruptcy in San Diego, and vice versa.
One thing I’m sure Congress did not intend they got anyway: the way bankruptcy is set up now actually (in this humble writer’s opinion) promotes divorce. Couples who could not have successfully filed a joint bankruptcy if they stayed together may well be able to each file an individual case if they separate and / or divorce. Two households, two separate means tests, less money per household to go around and you have the makings of a Means Test much more likely of successfully surviving in a Chapter 7. In one case, two family law attorneys on opposite sides of a case urged me to represent each of their clients in their respective individual bankruptcies. The husband and wife each waived the obvious) conflict of interest. Bankruptcy made their conversation between themselves and their family law attorneys about spousal support so much easier. The higher-earning spouse got a dollar-for-dollar deduction on the Means Test; the other spouse, even with the support, was still below the median income. With a few strokes of the pen and clicks of a mouse, we started the process which would wipe out nearly $200,000 in debt. A happy-ish ending for everyone, at least from a dollars and cents perspective.
Sometimes bankruptcy and divorce can go hand in hand. More often than actually happens, they probably should in San Diego.
Couples who are contemplating divorce are already going through one can tell the rest of us a thing or two about financial hardship. Often they’ve been struggling financially even with both spouses working. Once they’ve separated – and especially when they have children – what may have been a sometimes-endurable hardship becomes too much to bear. The burden of maintaining separate households, now having two wardrobes for the children (one at each parent’s home), two sets of toys… you get the idea even if you’ve never been through the experience.
Divorce and bankruptcy in San Diego: When might one of these seemingly un-hopeful proceedings be the friend of the other?
In Family Court, couples litigate about two main subjects: Money and children. What if it were possible to remove much of the conflict about money? Instead of litigating (which is by itself quite expensive at $350-$450 / hour) about who pays which debts, BANKRUPTCY might sweep most if not all of the debts away. Once the enormous burden of debt is lifted, the parents can focus on their children; the childless litigants in family court can redirect their attention, relieved of one big source of conflict. It is well established that friction over money issues is far and away the factor most common in the downturn of a relationship. These is a flip side to this, of course. When one spouse / parent files bankruptcy and the other does not, it might be a symptom an elevated level of conflict between the two; it could be one seeking financial protection from the other. We’re focused here on using to advantage the sometimes symbiotic relationship between San Diego divorce and bankruptcy. For the person who is behind on support obligations, including paying for attorney’s fees the other party incurred, s/he will not be permitted to discharge the arrears in bankruptcy. S/he may, however, be permitted to schedule repayment of arrears in a Chapter 13.
When should bankruptcy and divorce work together in San Diego?
Our costs of living are so high in San Diego county that a joint bankruptcy may be the one “two-fer” that a divorcing couple may be able to agree on. Many people aren’t aware that bankruptcy might be a viable option until they’ve gotten advice from an expert. I’ve made a concerted effort to educate family law attorneys about the sometimes mutually beneficial relationship between divorce and bankruptcy in San Diego. The option of bankruptcy is often unknown or unexplored because people still have a perception that they’ll be stigmatized, publicly humiliated, unable to get credit other old and now false notions about bankruptcy. Think about how much simpler a divorce could be without credit card debt, without personal loans, without repossession or foreclosure deficiencies. How about being able walk away from the family home (because neither of you can afford it without the other) without having a short sale or foreclosure on your credit report? I still get a holiday gift basket every year from the man who gave in on paying spousal support to his wife and went forward with a Chapter 7 bankruptcy during his divorce in San Diego. Reduced conflict, happier ex-spouse, simplified divorce, it was a positive outcome for everyone. Except the family law attorneys whose billable hours were cut short;) Seriously, though, they were good lawyers looking for the best result for their clients so I have to believe they were happy with the outcome too.
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