Lunch & A Divorce Lawyer LIVE with Bankruptcy Attorney Daniel Winter
THIS MONTH:
Divorce and debt frequently happen in pairs. TIMING is everything to really give yourself a fresh start both relationally & financially.
Learn more about Bankruptcy Attorney Daniel Winter at:
https://bankruptcylawchicago.com/
Peter: Hi! Welcome back to Third Thursday Lunch & A Divorce Lawyer. I am attorney Peter Olson, Chicago Family Law Group.
Thanks for joining us. This month I am excited to have a special guest, attorney Daniel Winter. Welcome to our little production here Daniel.
Daniel: Thanks for having me, Peter.
Peter: What's a quick nugget? I think I know you're a bankruptcy attorney. What's a quick description of what you do on a daily basis?
Daniel: Well, I help people solve their financial problems so a lot of times people come to me at various times in their life. A lot of times it's after a major transition and losing a job or something like that or in the middle of a divorce. So, my practice area and your practice area dovetail a lot. Sometimes, people have to talk to a bankruptcy lawyer at different times if they get served with court papers, legal papers, but divorce and major life changes really bring into focus what the family was doing and the kinds of debts that they might have.
Peter: Just a quick nugget before we jump into some, let's call it overlap between divorce and family law. Is there a macro level the pandemic has been, how for your world as a bankruptcy attorney?
Daniel: Well, with the pandemic, people benefited in a couple of ways dealing with their debts. One way is that the court system has been very slow. People haven't been sued this often and then there was the moratorium on evictions and foreclosures. So, what happened was, people got a break because they couldn't work, lost their job or had reduced hours so the court system and the federal system, the president and everything down in the state courts, gave people moratoriums. That meant that they could stay in their houses longer and not deal with the consequences of not paying, and they worked it out with lenders.
Also, if they did fall behind, a lot of creditors like credit card companies were giving people a break as well. Now that's starting to end, the moratorium has ended on foreclosures and evictions and also credit card companies and other lenders are going back to court to try to get people to pay.
Peter: Interesting. I know just at a super personal level, we outsource some occasional judgment of ours. I know the attorney who does some of that stuff, he has said “some of that part of at least the Circuit Court of Cook County, those collection courtrooms are sort of operational again whereas I think they were frozen for a while. I don't know that world at all, but…
Daniel: Well, they might have just permanently continued these cases several times, but a lot of times it's the backup in getting a court date and getting these cases filed. So, people have had over a year break in dealing with a lot of these things and it's been record lows in the bankruptcy filing. You asked, how did it affect it?
We've been at record lows for filings, even though the federal bankruptcy court system has been opened the whole time. There was not a single day where it wasn't open. There may have been hearings postponed for a couple of weeks, but everything was open. We do all electronic filings in bankruptcy court, so it's available and all electronic hearings by video in front of the courts and for bankruptcy creditor meetings, which are the hearings where, if you file bankruptcy, you have to go to. But now everything is virtual. So, we haven't missed a beat in terms of availability, but people just haven't done it because they haven't had to deal with their financial issues quite yet.
Peter: To dig down a little bit, I know bankruptcy is this big thing. What are you doing specifically? Are you in, what it would be fair to say consumer bankruptcy and what does that look like?
Daniel: I do consumer bankruptcy and I help small business owners. So, if you run a business anywhere from driving Uber to running a grocery store or a restaurant, I can help you or reorganize your situation and figure out what your best options are. Another part of the big picture is if you're a consumer, there are two different types of bankruptcy. There's chapter-7 bankruptcy, which is what you think of as far as debt elimination. It can eliminate credit card debt and medical debt.
Chapter-13 bankruptcy allows you to get caught up on a house or a car, so that if you're behind and you're threatened with foreclosure, you can catch up on your house and keep your house. The perfect example is if somebody lost their job during the pandemic, fell behind with their mortgage and couldn't catch up and couldn't work out a deal with their lender, then they can catch up through chapter-13 bankruptcy, which is a reorganization, but for people. So, that helps people save things as well. So, it's not just “I lose everything”, but it's more like you protect things that you own in bankruptcy as well.
Peter: How long does a chapter-13 plan typically run?
Daniel: What happens is chapter-13 plans run anywhere from 3-5 years. The minimum time that you can be ordered to pay your creditors is over three years and the maximum time is five years. It doesn't mean you have to pay all your bills back in full. There are certain plans depending on what you own. You may be able to pay back your bills at 10 cents on a dollar. There are other plans. There are other situations where people have to pay back their bills in full over five years. It all depends on their situation. Typically, what I do is I have a free consultation with people and I go through their situation. I tell them exactly what their options are and what they need to do in the case of chapter-7 or if they're eligible for chapter-13 – what they would need to do. Either way, they'll know exactly what they need to do.
Peter: Here is my perception, I haven't seen too many bankruptcies around my world recently, knock on wood, but I feel like this chapter-13 I've seen over the years who would be kind of a person, who still have some income stream and they're often employed, but their debt burden has gotten a little too heavy, is that sort of a typical chapter-13.
Daniel: The reason why people file chapter-13 is if either A) They're making too much money because there's a Means Test. It says if you make over a certain amount of money and you don't pass this test then you need to pay back your bills to a certain degree - that's one type of person. The other type of person is if they own too much stuff. You're allowed to protect $15000 per person worth of equity in a house and if they've got a lot of equity in their house, they may need to do a chapter-13 to protect their house, to pay back at least that much the equity remaining. The third type of person would be somebody that has a wage garnishment or is behind on their house or car and needs relief immediately. If they're behind on their house or car, would stop the foreclosure, would stop a repossession right away so it gives instant relief. It's called the automatic stay in bankruptcy.
That's what chapter 13 is used for a lot. It's more costly for people, but it's up to a five-year repayment plan. I tell people I am married to them for five years because people's income ebbs and flows and for a consumer procedure, it's very complicated and very in-depth. So, you're really in this payment plan and you're with me for five years, and it's a lot of work, but it's worth it if you can get through it.
Peter: Can we talk through maybe a little bit, let's call it a generic hypothetical of a couple. A couple who might be having some financial issues while at the same time, perhaps considering splitting up, divorcing or something. That's a common thing. I probably do have a list, but financial stresses and some of those things are often caused or at least symptoms of marital distress that I am seeing.
Jim and Jill Smith or something having some financial problems and haven't filed a divorce case yet. Any thoughts or general guidance on people thinking about timing in terms of filing a bankruptcy.
Daniel: There are two different times. The best time to consider bankruptcy if you're thinking about divorcing or if you're separated is before you get the divorce finalized. If you can agree or even if you don't agree on anything else. If you’ve got credit card debt especially, and if you want to solve the debt problem ahead of time and agree to file a bankruptcy together or even separately, that's one less thing you'll have to fight about and to pay Peter to divvy up because then it would cost more to figure out. You have to pay Citibank Mastercard. I have to pay Chase Visa or whatever and you split up and that takes more of Peter's time and more of your money where if you file bankruptcy and if you qualify as a couple, you could file bankruptcy and get rid of that debt. That's one less thing to worry about and to pay to divvy up.
If you have assets and a house, that's another thing because then you've to decide who is going to get the house in the divorce. If there's equity there, when is it going to be sold? Who's going to live there? All those things can impact what happens in the bankruptcy because if there's equity there in the house and it's split 50/50, the best thing to do is to sell the house before you'd file bankruptcy. Because if there's a lot of equity, the bankruptcy court could take that as well. The legal fiction is when you file a trustee steps in and steps into your shoes, but if I was married to Jane Doe and our house had a $100,000 worth of equity and we decided to file bankruptcy, then we wouldn't get to divide up the house, but the bankruptcy court-appointed trustee would.
But if we sell the house and use the money for whatever we need to do it and then file bankruptcy that might be a way to go too. It just depends on how much in the way of assets there are, but for the typical people, they have no equity in their house. But it should be decided relatively quickly what's going to happen with that house and to divide up the debts. Without having to divide up the debts, you can file for bankruptcy, get rid of credit cards and medical bills between the two of you and then you can figure out what's left.
It's an in-depth conversation that sometimes line-up speaking with a divorce lawyer as well.
Peter: If you're doing it during the divorce, how does that affect timing on the divorce case? Because when I am saying that automatic stay is going to pause the divorce case, I think we can lift that pretty quick but - Is that the only downside? Little delay maybe in the divorce?
Daniel: What happens is if you filed a divorce case already, the bankruptcy stay does apply because like we discussed before, the bankruptcy trustee gets to look at all the assets and if there are assets to divide up, the bankruptcy court gets to look at that which is why it's better if you see what there is before you would file divorce. So, yes there's an automatic stay.
As far as child support, temporary support, whatever it may be, the state doesn't apply. For example, if the husband has money coming out of his paycheck, 500 every two weeks or whatever for child support, that remains. That keeps going on, but for property, the stay would stop the divorce and wait until the bankruptcy is over before the divorce can continue. So, it can put a wrench in divorce proceedings., so sometimes people file bankruptcy before they even file the divorce proceedings.
Peter: That seems like it would be the best move to me. Of course, I guess real world you're talking about people who might be conflictual and maybe thinking about one another's or mutual best interests might be a little low on the totem pole at that point. I am generalizing. A middle-class family with some medical debts and whatever medical and credit card debt, fifty to a hundred thousand. How long does a chapter-7 take in that sort of a picture?
Daniel: In most cases, the chapter-7 case, what happens is they would meet with me. They would prepare the paperwork. They would get me documents and getting the documents usually takes longer than the rest of the case because they'll need to provide four years’ worth of tax returns and six-month worth of pay stubs for each of them and their bills and then they have to do credit counseling course and then we get to file the petition. They sign the petition, called a bankruptcy petition and then we file with the court. They have a court hearing about one month later and then about three months after that is when they get their discharge and the bankruptcy is done.
It's about 4-5 months altogether from the beginning when it's filed till the discharge meaning that it's done. That's a short time to wait, but if you're in divorce court, you know how long these proceedings can take with the different court dates and negotiations and getting court dates. With the county, that can take a lot longer.
If you can wait 4-5 months before you have filed the divorce proceedings that might be easier. I think people need to realize that they don't necessarily need to be friends. They just need to be married to file for bankruptcy together. If they can agree to disagree, but say “look you won't have to pay an extra $5,000 in legal fees and neither would I”, they can save a lot of money if they can eliminate their debt before they even step into divorce court. I mean this would all be part of the negotiations ahead of time.
If it's amicable, if only one person has a lawyer and the other person says “you know what, I think we can agree on these things, you could tell them better than that” but if they agree that they would file bankruptcy ahead of time to get rid of the debt, that can save them a lot of time and money.
Peter: My stereotype is that even just starting this call, it might delay the court case, the divorce case a little bit but if you take away a couple of big issues, i.e. maybe negotiating a couple of debt pieces, I am not so sure it even really delays the case, the divorce case?
Daniel: The ramifications though something to consider is, if somebody gets divorced before they file bankruptcy, the wife gets in the divorce decree that husband has to pay all the debts that are joined. For example, if you have Citibank and Chase and all these other ones that are joined and it says husband has to pay and then husband wants to go and file bankruptcy afterwards. So, if husband files, he has to list the wife and tell her he is filing bankruptcy so she would have the right if these companies start pursuing her, then she is going to be very angry and she can go into the divorce court and say “well, wait a minute, you were supposed to pay these, these shouldn't be eliminated in your bankruptcy and create a lot of problems”. So, then there's more litigation in the bankruptcy court.
It behoves them. It really would benefit them to just get these things taken care of before the divorce because what happens is once one person is assigned to debts in the divorce then that obligation would survive the bankruptcy. If somebody owes Chase Bank $10,000 and files bankruptcy, but it says that husband has to pay then the wife could still sue the husband in divorce court and say “well, you didn't pay it.” It doesn't eliminate the obligation to the former spouse.
Peter: That makes me think of almost like I can think of a couple of situations. It is almost like a time bomb or a disservice to my client if you got this big debt pile, that's a joint debt pile, and one of those persons does the bankruptcy post-divorce. Chase Bank doesn't care what your divorce decree says. I've run down that road before. I am just thinking out loud what it was a while ago where some guy - we weren't in the divorce but he had a piece of real estate pulled from him because somehow it was jointly owned with the now ex-wife and it really jammed him up.
Daniel: So, it's the joint debts that you need to be concerned about. The ones where both parties are on the debt or if one is an authorized user. So, if John Doe got a credit card and added Jane Doe to the credit or James Doe for that matter then if only John files bankruptcy, there's still a contract with Jane and Citibank or Jane and Chase. They can still pursue Jane. I always tell people it's better to agree to file bankruptcy beforehand because then you won't have the angry spouse going after you or if you have to do it separately, to hire somebody like Peter to make sure that all the debts are assigned to the other spouse beforehand.
If you're representing one of the parties, the move is to represent one and make sure you have as many of the debts assigned to the other person if you aren't going to agree to file for bankruptcy together.
Peter: You just said something sounds familiar, joint credit card or something, joint mortgage that authorized users on a credit card. What does that tie a person to?
Daniel: That would make that person as responsible as the primary holder on the debt. So if they have a credit card in their name, they can be held responsible for that debt if they're an authorized user.
Peter: So, they are just trying to sell me some garbage when they're trying to get me to add my wife as an authorized user?
Daniel: She'd be as responsible as you. Now, it may be in the contract that she isn't, but I wouldn't count on it.
Peter: That's interesting because I'm always leery. I feel like I will get a credit card or something. I mean I'm never really applying for a credit card with my spouse. She has her credit card. I feel like they are trying to sell me that to add an authorized user for some kind of scammish reason.
Daniel: Well, it's because then they would have two people to go after.
Peter: Absolutely. We just had a divorce case. I mean that just came to mind, they had about 10-15 in joint debt. In the initial marital settlement agreement draft, the person who wasn't our client, he was going to pay off part of this debt of our client, but over time and I am like to our clients like, “No because there was a pot of money we could get from so we got the pot of money.” We got the lump sum because the divorce judgment is not as strong as discovered.
Daniel: And then you have a lawsuit and you've got somebody paying $200 a month, well that isn't going to help you if you're being sued on that debt.
Peter: That's super interesting Dan. Tell me about this thing, what's a domestic support obligation?
Daniel: In bankruptcy, there's a new-fangled term since the 2005 amendment's called, Domestic Support Obligations. Before bankruptcy courts just used to talk about it as child support, alimony, maintenance, and things like that. Now they have this overarching term called Domestic Support Obligations. What it means is all of those things. If you owe your spouse or former spouse any of those things, child support, alimony, they call it maintenance in Illinois. If you owe them any of those things:
1. They have to be notified of your bankruptcy via chapter-7, chapter-11 or chapter-13. They have to be notified. Why…? Because the bankruptcy system wants to make sure that anybody that's owed, especially an ex-spouse who has to get child support has to know where this person is and where they're accessible.
2. Any domestic support obligation is not eliminated, not discharged in the bankruptcy. It says right in the bankruptcy court, these are the debts that are not eliminated. One is Domestic Support Obligations.
3. In a chapter-13 repayment, they get first priority. They have to be paid over anybody else. So, if you have back child support and you want to file chapter-13 and reorganize your debts, you got to provide for that back-child support 100%. So not only you have to pay your current support and that comes out of your paycheck usually, but you have to pay the domestic support obligations which is any back-child support.
eNow I've had people that have been threatened to be in contempt of court for not paying their child support. Plenty of things, I am sure you've dealt with plenty of clients, representing them on either side of the equation for one reason or another, they don't pay what they owe in child support. Maybe they lost a job but they didn't tell the court. Well, you and I know that that's not an excuse. You have got to go into court and tell them you're not working. Anyway, if you don't pay the support that's a domestic support obligation, the back-child support so that's to be paid in full. I've had people owe $50-60,000 in back-child support and that can throw a whole chapter-13 out of whack, that's an extra thousand dollars a month that they have to pay because it has to be paid in five years. It can be used to stop a contempt proceeding and then they have to reorganize it into chapter-13. It can give people a break so to speak, give them time to pay but it doesn't give them the permission not to pay.
Peter: Is there a way to wiggle things into being a domestic support obligation other than the obvious ones like child support or maintenance. Like Peter has to pay $5000 on the Chase credit card bill to his wife and this is a domestic support obligation. Can we define that or not?
Daniel: Well, that's a very legalistic question and the answer is, there have been plenty of people trying to define things certain ways and since chapter-13 said you can't eliminate domestic support obligations, a lot of times attorneys have been trying to draft it to say “you have to pay.” Joe has to pay Jane $50,000 from their retirement account or whatever it is. By the way, this is a domestic support obligation. But what the bankruptcy term is, it has to be not just defined that way but in the nature of support. There are all sorts of little tests that judges can rule on and it would go way beyond our conversation here, but we've had people in chapter-13 and we've had fights over what is this supposed to be. Is it a domestic support obligation? So, your question is right on point and it's something that people have tried to do.
Peter: I don't think it's my default, but I see a lot of people trying to slip in like some boxed language to define something as a domestic support obligation.
Daniel: That's smart but it has to be in the nature of support and that's where the judges come in and would have to decide. I had a whole fight in chapter-13 over “is it in the nature of support, is it not? Can it be eliminated or modified in chapter-13? So, we had a several-year fight over that in a very specific case over contributions of one spouse to another to pay for the kids’ college. It's a very in-depth, very-very fine point on the questions that come up, but when you're drafting things, lawyers try to get everything in there and it's better to try and fail then not to try at all, as only lawyers know.
Peter: Hey so just wrapping up Dan, where can somebody find you if they need a great bankruptcy attorney?
Daniel: I am at www.bankruptcylawchicago.com and my headquarters is in Wilmette. I do virtual appointments for anybody in the Chicagoland area and Northern Illinois. I also have offices where I can meet people in Gurnee and in Palos Heights, but the most important thing is, check out the website. I have blog articles on all sorts of topics that I wrote myself. I didn't hire it out and I am available for any questions. No question is too small and especially if you get any court papers and you don't know what to do, it's important that you call a lawyer like Peter or like me to see what to do because once you get those court papers, what you do with your assets can determine what's going to happen.
Peter: Here's my ideal client or this is the most typical segment of a person I'm working with?
Daniel: My most typical clients are two people that are working, have a house, a car too and are just struggling to keep things going and had to use credit cards to make up the difference in their pay checks. That's one typical client. The other typical client is somebody who's fallen behind in house or car obligations and needs a way to catch up. For example, job loss. This is going to be huge eventually after the pandemic everything sorts out. People are going to need to figure out how to catch up on things.
Peter: Super interesting. Hey this isn't a 30 second question, so I'm hesitant to even ask. What's the latest on student loans with regards to bankruptcy. Is there anything, any movement in that area because that's a time bomb for young adults.
Daniel: It isn't a 30-second question, but the bottom line is student loans generally, unless somebody is disabled and can't work, cannot be eliminated in a bankruptcy. There are certain things I can do to help people in a bankruptcy, put them in a chapter-13 and help them pay what they can afford. Also, the thing people need to look for in student loans outside of bankruptcy is what kind of loan is yours. I did a little video on this during the pandemic, but really people should look to see if their loans are federal loans or are they private loans. The difference is, federal loans have all sorts of different programs and we may get a whole slew of new programs come next year with this administration looking into what they can do on student loans, because federal loans have a lot more options. They're still on a break so to speak and there's no collection on them right now until the end of January next year, but people should figure out what they are.
Private student loans are like borrowing for school on a credit card and they can pretty much do whatever they want right now in terms of requiring payments, suing people and things like that. The most important thing is to call a lawyer. I deal with student loans as well as bankruptcy, so they dovetail but, you're going to see reports of people. They got their student loans wiped out. They're very-very specific rulings and judges still are constrained by the law in terms of eliminating student loans. You have to really not be able to work for the foreseeable future to get rid of student loans in bankruptcy.
Peter: Thanks again for jumping on here Attorney Daniel Winter and I think I heard your website as www.bankruptcylawchicago.com. Check him out there. You're my business partner for bankruptcy referrals. People who call me, I'm giving you.
Thanks again for sharing your expertise.
Daniel: Thank you Peter, good to talk to and if anybody has questions about divorce, I would always send them your way as well.
Peter: Thanks a lot Daniel, bye.
