Questions about debts or bankruptcy? Call Doug Beaton, a local specialist in American bankruptcy law.

Can having a valid pre-nuptual agreement help you out if you later decide to file Chapter 13 bankruptcy?

Maybe, but don’t count on it, at least in Massachusetts.

There, one debtor pointed out that her pre-nup called for each spouse to pay their own debts during the marriage, and in particular, called for the wife to pay the mortgage on their house, which was in her name alone.

No problem so far, but when she had to file for Chapter 13 bankruptcy, her lawyer argued that the pre-nup agreement essentially prevented the husband from being responsible for any of the routine household expenses.

If that was true, the wife would be responsible for all of them, drastically reducing her “disposable income,” which is the amount she then has to pay to her creditors through her plan.

Not surprisingly, this drew an objection from the Chapter 13 trustee. Forced to decide the issue, Massachusetts bankruptcy judge Melvin Hoffman found that even though the pre-nup language may have been legally correct and valid, the wife’s bankruptcy plan was not proposed in good faith, and he refused to confirm it.

The case is In re Waetcher, and it was decided in October, 2010.

If you are thinking about bankruptcy as an option, make sure you get a lawyer who will get your plan confirmed with the bankruptcy court. If you live near the Lawrence, Mass., area, give me a call at (978) 975 – 2608.

By Doug Beaton

Debtors with relatively high incomes who suddenly lose their job have some unique hurdles to clear if they need to consider bankruptcy. This is because the “means test” that calculates whether or not a debtor is eligible for a Chapter 7 discharge is a backwards-looking thing; all calculations are based on your earnings in the six months before a bankruptcy filing.

Orlando bankruptcy lawyer Jonathan Alper gives a good example of this on his site, where he discusses a debtor who, until recently, has been earning $8,000 a month, then whammo!, a pink slip arrives.

Now most folks aren’t going to pass the means test if they earn $8,000 a month unless they have a bushel of children to feed. (Actually, in Massachusetts, a five person family would allow him to pass). But they can wait a few months, while some income “drops off the end,” and then file.

Then there is the situation of the unemployed debtor who has been out of work for a while. If he or she somehow manages to find a new $8000 / month job, but still has an overload of debt, this would be a situation where you would file the bankruptcy case quickly. The debtor’s unemployment benefits alone are unlikely to cause a means-test failure, but severl months of working at high wages will eventually cause a disqualification. Just another day in the topsy-turvy world of bankruptcy law!

Although attorney Alper’s analysis is based on Florida figures, the situation is generally about the same for unemployed persons considering bankruptcy in either Massachusetts or New Hampshire.

By Doug Beaton

Chapter 13 bankruptcy can be a very powerful tool for homeowners trying to work their way out of a mortgage problem.

The thing is, Chapter 13 has its own rules to comply with, and debtors probably don’t want to thumb their nose at them.

One of the rules calls for secured debts to be paid off during the life of the plan, which by law can’t be longer than five years.

So how does that help with a mortgage, which often stretch for fifteen or thirty years?

In Massachusetts, the widely followed McGregor case creates an exception for these debts, so long as the debtor agrees to make regular payments on their mortgage note in addition to paying off arrears through the plan.

But the debtor in the recently decided Gusmao case tried to strecth the rules a little to far. Her plan called for lowering her mortgage payments and paying the note off after the plan ended.

No dice, said Massachusetts bankruptcy judge frank Bailey; in order to confirm a McGregor type plan, the debtor has to be willing to make her regular payments according to the terms of the original note (same interest rate, same payment amount, etc.).

You can’t have it all — in bankruptcy, like on Wall Street, pigs get slaughtered.

By Doug Beaton

If you file a Chapter 7 bankruptcy case, are your creditors likely to object to it?

Typically, the answer is no, although every bankruptcy attorney has war stories about the exceptions. And despite what you’d probably guess, objections are less likely to come from major credit card companies than they are from creditors whom you know personally.

Like your former divorce attorney, for example.

In the Riley case, a Massachusetts teacher listed the lawyer who worked on her divorce case as a creditor in her Chapter 7 bankruptcy (which is the proper thing to do, by the way). The lawyer, however, raised holy hell, and forced the poor debtor to go through a trial in order to get her discharge.

The attorney questioned nearly every aspect of her former client’s finances in an attempt to get her bankruptcy case dismissed. Her salary, anticipated raises, and apparent omissions from her schedules were all brought up at the trial. One of those omissions was the child support she received through the divorce case. Lesson of the day: child support you receive must be declared in at least three places on a bankruptcy filing — on the means test form, on Schedule I, and on the statement of financial affairs.

Nevertheless, US bankruptcy judge Joan Feeney in Boston sided with the debtor at this trial, ruling that the debtor’s amendments to her original filings were enough to display that the case was really not an abuse of the Chapter 7 system.

But, for those reading this: do remember to tell your bankruptcy lawyer about any child support payments that you are entitled to receive!

By Doug Beaton