Your bankruptcy proceedings will vary depending on whether you have filed a single or joint bankruptcy and whether you have filed for Chapter 7 or Chapter 13 bankruptcy. Your family law attorney and bankruptcy attorney should work together to determine the best course of action for your cases. Although your assets and liabilities may not be part of your divorce proceedings, the divorce court maintains jurisdiction to order spousal support or child support.
Both of these obligations are non-dischargeable in bankruptcy. Spousal or child support will be awarded just like it would in any case, even if you are in bankruptcy. The divorce court also has authority to make child custody and parenting time decisions. Although I practice law in Michigan, I cannot give you legal advice without thoroughly reviewing your case. Do not rely on this information as establishing an attorney-client relationship. Even if it looks like the bankruptcy has only been filed to eliminate unsecured, non divorce related debt you should still consider doing this.
As opposed to a discharge of unsecured debts as is commonly seen in a Chapter 7 bankruptcy, if your spouse files under Chapter 13 the situation becomes a little murkier for you as an ex-spouse. Since a property settlement was likely arrived at in your divorce the reason why Chapter 7s are sometimes preferable for an ex-spouse in your position is that they cannot be discharged in this type of bankruptcy, as we saw in the section above this one.
On the other hand, they are dischargeable in a Chapter 13 bankruptcy. If your spouse has filed a Chapter 13 bankruptcy you may be in for a fight to maintain the obligations that were ordered in the divorce. In your divorce it is likely that you and your ex-spouse both agreed to pay certain debts that appeared in both of your names, and in doing so would offer to indemnify the non-obligated spouse from any further liability under this debt.
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For example, if you are awarded the home in your divorce it is common that you would sign a Deed of Trust to secure assumption over to your spouse. This tells your ex-spouse that if you should fall behind in paying the mortgage that he or she can come in and take back the house through a foreclosure. It is not uncommon for those filing bankruptcy under Chapter 13 to do so in order to remove the obligation of paying debts that he or she is solely liable on under the Divorce Decree.
It happens as well that while your ex-spouse may be discharged from responsibility for paying a debt under bankruptcy proceedings that the creditor on the loan to a home, vehicle or other item may look to you for payment. This may come as a surprise to you. I do not relish having to tell a potential client or client that just because you and your spouse agreed to something in a divorce decree does not mean that a credit card company or mortgage lender was a party to the document and is similarly bound by its terms.
The fact is these creditors were not parties to the decree and the law does not see it as a controlling document as far as debt liability is concerned. If this situation sounds familiar to you my advice would not be to look back to your divorce attorney and instead advise you to talk to a bankruptcy attorney.
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The attorney who practices bankruptcy law can review your Final Decree of Divorce to see if the debt in question really is a part of the property settlement contained therein. It could be that if you gave up your rights to make payments on a debt in favor of your spouse doing so it becomes more likely that a bankruptcy court could determine that this is more in line with a future support payment than it is a property settlement debt.
How can this be? The answer lies in the unique challenges presented by the construction industry.
When a company is growing, that means that they will be taking on more and more jobs. And more work means more cash going out the door. On top of that, margins can be very slim in construction.
Divorce, Bankruptcy and The Automatic Stay
This failure rate was the worst measured for any industry surveyed. Often times, a bankruptcy proceeding is so long and drawn out that many companies simply give up and write off the amounts owed as bad debt. This is supposed to allow the debtor time to come up with a plan to pay back all of the parties they owe money to.
Lien laws vary between states, but the lien right generally arises when the materials are first delivered or the work was first performed if not before then — at the start of the project as a whole , well before the lien is perfected. The Bankruptcy Code permits the lien to be perfected after the filing and during the automatic stay. The takeaway is this: If the bankrupt party does not have an ownership interest in the property being liened, the lien may be foreclosed upon despite the bankruptcy proceeding. If the bankrupt party does own the liened property and the claimant wants to enforce their lien, leave of the bankruptcy court is required to enforce the lien during the automatic stay.
Otherwise, the lien might be enforced after the automatic stay is lifted. The exception that allows the perfection of the lien does not apply to the enforcement of the lien. The claimant is allowed to file a lien preservation notice with the bankruptcy court to notice his intention to preserve and enforce his lien rights.
This notice serves to show that the lien holder intends to enforce his mechanics lien against the real property that is subject to the lien. If correctly filed, the notice tolls the foreclosure deadline until at least 30 days after the automatic stay is lifted. In either case — and the most important thing to remember — is that the mechanics lien claimant remains protected.
But, is it possible to enforce a mechanics lien despite, and during, a bankruptcy proceeding? Like many legal questions, the answer is: it depends. Because mechanics liens are rights against the property to secure the payment of a valid debt.
Should I File For Bankruptcy Or Divorce First?
The takeaway of mechanics lien enforcement during bankruptcy is this: If the bankrupt party does not have an ownership interest in the property being liened, the lien may be foreclosed upon despite the bankruptcy proceeding. If the bankrupt party does own the liened property, things get a lot more complicated. Everybody has the same question when a debtor files for bankruptcy protection — Will I get paid? To determine the chances of recovery from a bankrupt party, one of the essential factors to consider is the nature of the debt.
That is, is the debt secured or unsecured? Unsecured debt is typically wiped out by a bankruptcy filing. However, secured debts typically remain intact through the bankruptcy if the debtor holds onto the property securing the debt.
When a Creditor Tries to Lift (Remove) the Automatic Stay
The answer? Since a secured claim survives the bankruptcy, a mechanics lien holder is a good position.
However, bankruptcy law is complicated and there is a unique wrinkle to the situation: a mechanics lien will remain enforceable after the bankruptcy adjudication — but the debt which gives rise to the lien may be discharged. If this seems impossible, or at least counter-intuitive, remember that a mechanics lien is a right against property which is why it is secured and survives the bankruptcy proceeding.
Unfortunately, this is not an iron-clad guarantee of payment.