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  1. #1
    Join Date
    Oct 2006
    Posts
    3

    Angry Double Trouble with Ex- and Chapter 7 Bankruptcy

    I have been divorced for 5 years now. The ex and I each held equal shares in a small private company for many years prior to the divorce. 10 months prior to the final divorce proceeding we had "opnion" letters from 2 different appraisers about the value. Of coarse hers had a higher value by 20-30%.
    The issue arose when just after the divorce, 5 months, the company could no longer sustain the payout schedule due to a hugh down-turn in the electronics industry economy in 2000-2001. At the time the ex agreed to 1/2 the payout rate (she was CFO, prior to the divorce) as there was little alternative. Even this rate was a burden for the company and limited the company by prohibiting advertizing, prohibiting incentives for employees, forcing us to layoff 60% of the employees, shrinking our floor space by 25% (leased), upsetting many vendors due to very late payments, causing the corporate bank to try to foreclose (the corp sued them and stopped that), stopping any corp ability to borrow (the corp has not open lines of credit), and on and on. This situation laid dormant until my daughter was off to college. I asked the ex to "tighten the belt" so that we couild finance my daughter's college (about $35K/yr), (the ex does not work, but lives off the payout's I am making). The response was a series of contempt suits in the probate court for the aggearages on the 1/2 not being paid for the 4+ years of about $310K, another contempt for around $1.1M as the damand for the note as well as atty fees etc. I represented myself in probate court (not smart I know), when I dsaid there was no monies available to "settle" ( I povided corp and personal financials), the judge had me thrown in jail (all this took about 2 minutes). While in jail, I tried to get the judge to reconsider to decision based on the fact that I had no ability to pay and that I did not have proper counsel. During the 7+ years prior (including the seperation period), I was paying the ex about $90K plus medical benifits per year. The judge would not hear anything about me getting out, no hearing etc. I also tried to get transcripts, however my atty was told, no records exist of the hearing. After 3 attempts to get out of jail this way, I filed a Chapt 7 bankruptcy, with a stay in effect I should be able to get out, well, the judge still would not let me out and each court backed off to see what happens next. Then came the Christmas holiday and the judge let town on vacation, so into court for another emergency hearing with a new judge who let me out that day before noon only minutes after the hearing. While in jail I was trying to run the company via telephone about 6hrs a day, all the while employees, customers, and vendors are wondering where the hell I am! I am still not sure why I did this except I am very responsible to my employees, customers, and vendors. For some reason it did not concern the ex that she was risking everything in the process, ??.

    Now to the Chapt 7 issues, the "new" bankruptcy laws are a minefield with respect to divorce issues, the problem facing everyone in this case is that the assets are of little value (company =$~0 now, my other assets <$30K not including my house, which has a homestead on it). Any future payout is coming from cash flows from the business.

    Because of the personal bankruptcy, the corporate bank defaulted the corporate notes, this are now subject to an agreed upon forebearance agreement (corp to bank). However, the bankruptcy court has to approve the agreement because the corp bank wants a piece of my house as collateral as well as my personal signature on the note. If nobody can agree the corp bank can forclose and basically take everything which is generating the cash flows now.

    All the atty's and trustee invloved are using the term "spousal support" to describe the monies owed from when I purchased the ex's shares of stock, just after the divorce was final (this was part of the divorce agreement that I would buy her out over time). I am not sure it is "support" in the bankruptcy sense. The trustee has had me route the payments which would have normally been paid to the ex to himself and is taking 20% off the top for his "fees". She now gets less that $50K/yr at this rate. The sum total of funds paid to the trustee now exceed the amounts I may have owed by the chapt 7 rules with the exception of the house equity (unknown value) This is a key point in the case as far as I can see. Can I shut the payments off?
    My 341 meeting has been started then delayed for 6+ months now. Are there rules how this should proceed? Up to my neck in du du .

    Any comments/ advice greatly appreciated. Thanks in advance

  2. #2
    Join Date
    Sep 2005
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    98,846

    Default Re: Double Trouble with Ex- and Chapter 7 Bankruptcy

    You may ultimately have to ask the bankruptcy court to decide if the payments truly are spousal support, in which case they would be nondischargeable, or if they are part of the property settlement but mischaracterized as spousal support. Given that all attorneys and the trustee seem to accept that this is spousal support, that's potentially an uphill battle.

  3. #3
    Join Date
    Oct 2006
    Posts
    3

    Default Re: Double Trouble with Ex- and Chapter 7 Bankruptcy

    Mr. Knowitall,

    Many thanks for taking the time to read and understand something of my situation. Given the rather stark differences in the outcomes between the answer as support (or not), the opposition could NEVER say anything but that the amounts owed were support.

    The section 523(a)(5) of the Bankruptcy Code (11 U.S.C. 523(a)(5)) generally exempts from discharge any debt that (a) is owed to a debtor’s child, spouse, or former spouse, (b) is “in the nature of alimony, maintenance, or support” for the debtor’s child, spouse, or former spouse, and (c) was incurred in connection with a court order, divorce decree, separation or property settlement agreement, or determination by a governmental unit in accordance with state law.

    Under (b) it states that the debts arising from "alimony, maintenance, or support” for the debtor’s child, spouse, or former spouse". Could the debts in question fall into this paragraph? I read this as a logic "AND" statement, any item being false means the outcome is false or nul, is this true?

    One possible clue is that the commencement of a civil contempt proceeding against a debtor for failure to pay a post-bankruptcy domestic support obligation was NOT able to be enforced in the BK court. (I am current on all real support payments and the judge made it clear, only alimony and child support were allowed. Otherwise the automatic stay should NOT apply as I read the new code.

    Section 11 U.S.C. 523(a)(15). may apply, but is totally unclear to me.

  4. #4
    Join Date
    Sep 2005
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    98,846

    Default Re: Double Trouble with Ex- and Chapter 7 Bankruptcy

    Given your statement that all of the lawyers and the trustee view the obligation as being in the nature of spousal support, it seems fair to infer that it's not an unreasonable position to take.

  5. #5
    Join Date
    Oct 2006
    Posts
    3

    Default Re: Double Trouble with Ex- and Chapter 7 Bankruptcy

    Mr Knowitall,

    As discussed, I am trying to push the situation along in the last few days, however, it has become clear that the atty's I have for the BK are part of some "club" in the BK court scene. They seem to wash one anothers hands while disregarding most if not all I say. The atty's are well known to the trustee and they seem to make "deals" without so much as informing me about them. Thus approaching the courtroom click about support definations might be impossible. If the debt in question was dischargable, the trustee would not get his pound of flesh, nor would there be justification for my attys to claim substantial fees.

    This brings me to one other point about my attys in the BK, I NEVER signed a fee agreement with them. They were supposedly hired by my former probate atty to oversee the possibility of putting the corp in BK. When the first atty I hired would not proceed with the 341 meeting unless I paid him another $30K+ ( I paid around $10K for the Chapt 7 filing), the BK judge appointed this new attys to take over and dismissed the 1st atty's additional fees, I think? (the new atty's said they were there on a "special" appearance at the time). The question is how to find an atty who will represent ME without being influenced by the "club". This "club" issue was also a problem in the probate court and got my 1st atty fired there as well, maybe I should have been more thorough and cleaned house totally!

    Any ideas how to find a atty to represent ME?

    Many thanks for your help and quick responses.

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