It's very common for divorcing spouses to explore bankruptcy options when splitting up property and debts at the end of a marriage. In this episode, Modern Divorce Host Billie Tarascio welcomes Modern Law Attorney and Bankruptcy Expert Stacey Rogan to talk about all the ins and outs of bankruptcy, including the different types and their impacts on you.
Spoiler Alert: If you're considering bankruptcy - whether in or part of a divorce, or simply because debts have gotten out of control, Stacey's information will make you rest easy. She explains all the ways bankruptcy issues can be resolved so that you can restart your life with a clean slate.
It's very common for divorcing spouses to explore bankruptcy options when splitting up property and debts at the end of a marriage. In this episode, Modern Divorce Host Billie Tarascio welcomes Modern Law Attorney and Bankruptcy Expert Stacey Rogan to talk about all the ins and outs of bankruptcy, including the different types and their impacts on you.
Spoiler Alert: If you're considering bankruptcy - whether in or part of a divorce, or simply because debts have gotten out of control, Stacey's information will make you rest easy. She explains all the ways bankruptcy issues can be resolved so that you can restart your life with a clean slate.
Billie Tarascio: [00:00:00] Hi, this is Billie Tarascio with the Modern Divorce podcast. And today we're going to have a fantastic episode with one of our newer attorneys, Stacey Rogan. You're going to love hearing about her background, which happens to be bankruptcy law in addition to family law. And we're going to talk about all things, bankruptcy and family law.
When your debt can be restructured, when it can be written off. So, if you want to make sure that you do not miss these types of shows, make sure to subscribe. Now, take a minute. We'll wait for you to go ahead and subscribe to our show. [00:01:00] And then if you have other topics that you want to see, don't hesitate to let us know this is a podcast for you on whatever it is that you want to hear about.
So don't hesitate to let us know Stacey.
Welcome to the show.
Stacey Rogan: Thank you. Glad to be here.
Billie Tarascio: How are you doing today?
Stacey Rogan: I'm doing great.
Billie Tarascio: Fantastic.
So before we get into the nitty gritty of bankruptcy, um, you are fairly new to Modern Law, fairly new to Arizona. Can you tell people about your back?
Stacey Rogan: But I'm originally from Arizona.
But when I went to law school, I moved to Michigan for law school. And then from law school, my law school roommate. And I realized it's our one chance in life to go anywhere we want, because we're starting fresh with a new bar exam somewhere. And we went to Maryland and we went to Maryland. I began, um, law career and in Maryland, I did domestic law, some general practice law and a lot of bankruptcy law, about 20 years of bankruptcy and [00:02:00] domestic law experience there. And then four years ago, I moved back to Arizona from Maryland, and now I'm here.
Billie Tarascio: So why Maryland.
We had friends in law school that were from there and coming from the desert, it was green and there was water.
I lived on the Chesapeake bay. So it was just very different than here.
It is. Yeah. And beautiful. And then you've got DC and it's just, it's
Stacey Rogan: a very cool. Yes, it was, I loved Marilyn. Yes, but family was here. And at some point, as you get older, you realize you need to be close to family.
Billie Tarascio: Well, we are certainly happy to have you back.
You bring with you a wealth of experience and knowledge, including Quadros, which not a lot of attorneys and Arizona family law attorneys do, but you have a background in Quadros.
Stacey Rogan: Yes, I can do. Quadros I've done. Quadros and um, I think it really. Not only with the [00:03:00] family law practice, but with bankruptcy, it's all financial.
And I like numbers. I like math. I like how the interplay between them and how to structure things. So it's most advantageous for a client. Absolutely
Billie Tarascio: messy money cases seem to be your jam, your niche and messy money cases can mean either you have a lot of money or you don't have a lot of money, both be messy, or you have a lot of debt.
So let's talk about, and you know, businesses can file bankruptcy and then personal good bankruptcy. Did, did you do all of those types of things?
Stacey Rogan: I did primarily individuals, sevens and thirteens. Um, there's, there's other forms of bankruptcy, particularly chapter 11 for businesses. And now there's the new sub five, which is a kind of a chapter 11 for businesses that works like a 13.
It's a smaller, more compact, easier to maneuver [00:04:00] bankruptcy, but I generally stay away from all of that. If you're going to do a chapter 11, it means not only do you have a business, but you have a business with a lot of assets, the quarterly fees are more than most people have in their whole estate. So, you know, those, those are a special niche and you want to go to somebody who's very well versed in chapter 11 before you try it.
Billie Tarascio: Okay. So you stick with the sevens and thirteens let's start with what's the difference.
Stacey Rogan: Okay. Basically a chapter seven is a clean slate, fresh start you're in and out of bankruptcy in 90 days. And it wipes away. Most of your unsecured debt, credit cards, personal loans, all of those things. It also will wipe away secure debts.
If you don't want to keep the item, you have a car you're upside down on, or you totaled it and still owe a fortune. You can just turn it back in and wipe that debt away in the seven.
Billie Tarascio: Okay, who was a good candidate?
Stacey Rogan: I would [00:05:00] say anybody who doesn't need to be forced into a chapter 13 for another reason. Okay. So chapter 13 is. Uh, repayment path plan through the chapter 13 trustee, or like a reorganization. People make a payment to their trustee for three to five years through this plan and they're paying back a small percentage of their debt and there's lots of reasons somebody might go.
Searching one is they just make way too much money to qualify for a seven. Um, another might be foreclosure and they want to keep the property and get current by making those payments to the trustee. You're paying your arrear. So your current at the end of the plan, if you have loans that you have liens on that you want to strip those leads are crammed on the value of a car. Like you owe way more than it's worth, but you want to keep the car. So you want to cram it down just to what you owe on it, or you even own outrageous interest rate for some reason. [00:06:00] And you want to cram that down to a current interest rate. You might want to do that in a 13, a 13 also has what we call a super discharge.
You can discharge debts and the 13 that are not dischargeable and a seven. And for domestic law, the big one, there is going to be debts owed to a spouse or former spouse that are not child support. So if you owe big attorney fees to your spouse, you owe a giant property settlement to a former spouse dischargeable in a 13 not and a seven.
So that would be a reason why you would filter that way instead of a seven, even if you've qualified for a seven.
Billie Tarascio: Interesting. So if I understand correctly, if you owe money to your ex and it's not child support now, what about spousal
maintenance?
Stacey Rogan: Not spousal maintenance, either not support.
Billie Tarascio: All right, but you owe, you owe your, your ex a bunch of money on for
whatever reason, whatever reason [00:07:00] you
cannot discharge that in a seven, but you can discharge that in an 11.
Stacey Rogan: Uh, 13 or
Billie Tarascio: 13. Okay. All right. Great. Now, what is the income limit
for a seven?
The income limits vary. It's based on your household size and the main income for your area, but I don't think people should get stuck on that's a hard line number. If you're over that number is simply means the bankruptcy attorney has to fill out the long form for the means test.
That's all that means it doesn't mean that you don't qualify or you can't qualify. Various expenses will go into that calculation and come out like a big one for a lot of people is child support that gets deducted from your main income. Also taxes. People who pay a lot in taxes. Maybe you don't have children be pay a lot in taxes that comes out or people who pay a lot in health insurance.
Stacey Rogan: Right [00:08:00] nowadays, you're seeing people with a thousand dollar monthly premiums on health insurance that, that comes out. So, you know, it's better if you don't say this is a hard number. I only can file bankruptcy if I make under this, because that's not the case. A good bankruptcy attorney can wiggle those numbers and find your expenses.
I spent a lot of my time and bankruptcy. Pouring through people's bank statements and tax returns to see what they forgot to list on their expense sheet. Sure.
Billie Tarascio: Okay. Um, it seems like divorce would be a fantastic time to file bankruptcy. You're literally starting a new life. It's messy, it's expensive. It's sort of has a tendency to wreck your credit.
Uh, what are your thoughts on.
Absolutely it is. And they actually go hand in hand because a lot of they say one of the biggest causes for divorces is financial [00:09:00] distress. And one of the biggest causes for bankruptcy is divorce because you have a two income households who are now trying to have two separate households, two house payments, two electric bills, two HOA payments, and all of these expenses that used to be combined.
So I think there's. They definitely go hand in hand and it is a really good time to take a look at your finances and say, oh, I'm upside down time to do something.
Is it better to file before or after the divorce is final?
Stacey Rogan: That's going to be a very individualized answer. Sometimes people, they don't have any.
Any money and they have lots of debt and their community debt here in Arizona. So they might as well just file, have a clean slate, a seven, wipe it away and be done. If they're going to be in a 13, you might want to wait until after the divorce is over a, in case you owe money to the spouse. But [00:10:00] also because you're going to be in the bankruptcy for three to five years.
Yes, you can sever the cases. It's not hard, but it's still a pain in the ass and you're still having to deal with your spouse that you're trying to split things with. So you don't want to be tied to them for a long time in this bankruptcy,
Billie Tarascio: can one spouse filed for bankruptcy before the end of the divorce.
If the other person does not?
Stacey Rogan: Absolutely they're completely individual cases and your marital status has nothing to do with your eligibility for filing.
Billie Tarascio: Do you, what if people have a lot of equity in their homes right now, we're seeing people with a lot of equity in their homes. Well that, and they're thinking they can sell their homes, pay off other debt and start clean.
When is that better than filing?
Stacey Rogan: I'm an old bankruptcy attorney. So often I'm going to say file the bankruptcy, unless it's a ton of, ton of ton of equity. The homestead exemption in Arizona is $150,000. So that is automatically [00:11:00] protected. Then if you're above that, you would have to pay that difference into the trustee over three to five years.
But depending on what your debts are that might go to debt, you're already going to pay. For example, if you had recent tax debt that you still needed to pay off because they're not dischargeable yet when you were going to pay them anyway. So why not pay him through the bankruptcy and, you know, still keep your equity in this house.
So, you know, there's a lot of individuality in every case, you can't just make a blanket rule for all cases, but I'm going to say for most people, file before you pay off everything, because if it's just going to go away or you have, are you going to pay a very small percentage, then you would still have that equity to put down on the new house.
Billie Tarascio: Right? So then you, there's nothing you can file bankruptcy, keep the equity in your home up to $150,000. So does that mean, do I understand correctly? Like you can have $300,000 in your [00:12:00] home because each individual of equity, because each individual only gets half of it.
Stacey Rogan: Yes, except if you're filing a joint bankruptcy, there's only 150,000 exemption.
We're not going to say 300, but if you file for divorce and it's divided and this person gets out their money and this person's has 150, then you still get your hundred and 50.
Billie Tarascio: You get to keep that money. And, and, um, and then what does it do to your credit?
Stacey Rogan: So they've recently changed how the credit scores are calculated.
Are these complex, complex logarithms, but bankruptcy. More or less is a hundred point credit score drop. However, it's not as bad as it sounds because all of the negative stuff comes off. So if you take all the negative off, then the score goes up to here and. Then it's not as bad, [00:13:00] but at the time you file bankruptcy, you are the best credit risk you could be out there because you owe no debt and you can't file bankruptcy again for a few years.
So you're a really good credit risk. So you will get offers of credits. You absolutely will, and you will rebuild your credit. And most people, two years after a bankruptcy can qualify for a house.
Billie Tarascio: Okay. All right. All right. Is your retirement protected?
Stacey Rogan: Yes. Retirement is a hundred percent protected.
Billie Tarascio: What does that mean? Does that mean Roth IRAs, traditional pensions.
Stacey Rogan: So qualified, all qualified 401ks IRAs. Pensions are protected. Okay.
Billie Tarascio: Interesting. Um, What else do I need to know? Like when you filed for bankruptcy, it stays your divorce, right? So your divorce stops at least on the property piece.
Stacey Rogan: On the property [00:14:00] piece, it kind of yes.
Stops. So you might want to time it depending on how eager you already get the divorce done. After. Or get it done before. Yeah. You know, cause you're, you can get permission from the court to proceed. I mean, it's, that's all the time
Billie Tarascio: and you can proceed with the child custody, the spousal limit. You can proceed on everything else and maybe even get divorced.
Stacey Rogan: Yes.
Billie Tarascio: And then deal with the property stuff at the end. And then, uh, did you say that the, the bankruptcy takes 90 days?
Stacey Rogan: Chapter seven is 90 days, but a 13 is three to five years based on your income.
Billie Tarascio: So that could slow down the property division for three to five
years?
Stacey Rogan: Yeah. If you're, if you're so most people, if you're already in bankruptcy, you can still get divorced.
You just decided what to do with the bankruptcy payment. Right. But if you're, if it's all up in the air, your case isn't confirmed yet, you're a new bankruptcy filing. It will stay that divorce, not the divorce, but the [00:15:00] property part, all you want to time that. So like, you know, if you know you're going to be a 13, maybe you finish the divorce first and then file a seven is 90 days.
It doesn't matter. And it's a clean slate. It doesn't really tie up the property because you're in and out before the court does anything. And it's not a liquidation. Usually most people don't give up anything in a seven. You can, you know, let's say somebody has, I don't know, Some asset that they don't have room to exempt in their case to keep, and they don't want it.
I don't know, maybe a stamp collection they inherited or something and they just don't want it. They don't care. They can just give it to the trustee. Or I had a woman who had had like an online store and she closed it and she had a garage full of random crap. So she just gave it to the trustee here, you sell it.
I don't want to. And then did that,
did that decrease the amount of money she owed?
Yes. The trustee uses that to [00:16:00] pay creditors. They file claims, but it was a seven. So she's still in and out of bankruptcy and the trustees doing that on the backend.
Billie Tarascio: Oh, wow. Okay. For a lot of people. They're is so much shame in the concept of bankruptcy that they don't even want to talk about it or know about it. So can you just take me through what to expect if I'm thinking about filing bankruptcy from, from, from that point all the way through.
Stacey Rogan: So, if you're thinking about filing bankruptcy, go talk to a bankruptcy attorney, somebody who does bankruptcy regularly all the time, not a hack.
Bankruptcy is very, very fact specific and intricate. And there's a lot of weird little nuances and you want somebody good who knows what they're doing? For example, if you have a business and you owe a bunch of tax debt, Maybe calling a short tax year is going to [00:17:00] save you a lot of money because you'll take non-exempt assets.
You have now pay dock stacks, you owe and then you'll get money for the next year. So like, things like that, you want an attorney who knows the nuances, knows how to avoid liens, knows how to recover garnished money knows how to unfreeze a bank account. Those things are really. Important. And sometimes you get attorneys who think they have free time and they're like, oh, I'll just take some bankruptcy cases.
It's just a form. Yes, it is just a form, but it's a form that's really important. It has a lot of nuances that are very specific to state law. So go to a local good bankruptcy attorney and talk to them. Most of them do free consultations, although all of them don't and it's worth your time and money to talk to them and they can tell you what it would look like for you.
Even if you're going to have to be an, a 13 and payback some of your debt. That amount of debt you're going to pay back as [00:18:00] almost always way less than your minimum payments you're paying. So it's still a huge benefit to you. And if you're avoiding liens and cramming down interest rates or values of assets, it saves you so much money.
And I think that's one of the things is people don't. Appreciate how important it is. If we're getting rid of a hundred thousand dollars of debt for you, what else is somebody going to give you a hundred thousand dollars free check? Right. So it's important treated as such it's important full disclosure, right?
If you lie, then you're going to all the money there. Uh, vacate your discharge and you're going to owe that money and you could possibly be charged with bankruptcy fraud, which is a federal crime. Full disclosure. You don't fudge, you tell your attorney and you let them use their knowledge and skill to massage the numbers and fit you into the right form.
Billie Tarascio: Will they be looking [00:19:00] at the specifics of your debt? Like, do they put you on trial regarding like how this happened?
Stacey Rogan: No, they don't look at that at all. There's no judgment as to how this happened. Everybody there, same problem. Nobody says, oh, you did this trying to take care of a loved one, or you tried to help somebody pay for rehab and spent $50,000 or, oh, you have a casino problem.
I see here. None of that is part of it. They don't look at the morals of how you spent your money. Nobody knows you did it. It's technically a public matter of public record. So people can find it out there somewhere if they look, but nobody looks your neighbors at looking, nobody knocks on your neighbor's door and tells him, Hey, your neighbor filed bankruptcy yesterday.
They just don't know creditors. Get a very nondescript notice. They enter it in their computer and that's it. Oh, back to your original question of what does it look like? So you meet with the attorney, [00:20:00] they gather all the information about your assets and debts, but together your schedules are usually about 23 pages of forms that you review and sign and file with the court.
30 to 35 days later, you have your meeting of creditors. It's a very informal hearing. No judge. No court reporter, they just record it. You're under oath. They ask you, did you list all your assets? Did you list all your debts? Um, do you own this house? Where did you get the value of it from do all this on it?
And that said it usually takes about seven minutes. And then in a chapter seven, you're discharged 60 days after that. And the 13, there's the confirmation hearing. However, you normally do not have to go and unless there's a problem and you need to see the judge, most of the times it's administratively approved and the trustee just uploads, uh, a form order for them to confirm your case.
And you [00:21:00] don't have to go back to court again. Wow.
Billie Tarascio: So forms and one hearing?
Stacey Rogan: Yep. That's it.
Billie Tarascio: Wow. A lot easier than going through the divorce.
Stacey Rogan: A lot easier and a lot less stressed to me, the hardest part for bankruptcy clients is deciding to do it. Don't want to do it. They try their absolute best. They liquidate their retirement, that I could have protected and borrow money from family and friends trying to stay afloat.
And they're just like, you know, trying to bail out a sinking ship because they're upside down and they just need a fresh start. They need to wipe it away and start over.
Billie Tarascio: If someone's filed for bankruptcy in the past, can they file
again?
Stacey Rogan: Absolutely. How often? It depends on whether the past was a seven or a 13, depending on when they file. Then if they got a discharge it's four to eight years.
Billie Tarascio: Wow. So [00:22:00] nothing is stopping somebody from just putting a bunch of stuff on credit cards, discharging it and doing it again. And again?
Stacey Rogan: Nope. It's
Billie Tarascio: The only thing that's really stopping them might be the creditors, but if the creditors keep giving you money to spend again, again, that's sort of on them, isn't it.
Stacey Rogan: Right. And that is one of the red flags for creditors. If they see multiple bankruptcies, then getting loans is much more difficult.
Billie Tarascio: Makes sense. The jig is up
now. Less forever. Got it. Okay. What else do we need to know?
Stacey Rogan: Because some dads are dischargeable and a seven related to divorce and marriage versus a 13. It's really important that people in their settlement agreements and even in divorce, decrees list whether something is in the form of support or not, um, It's it's really important because, you know, you'll just see, oh, was $5,000 and then we're trying to [00:23:00] backtrack and figure out was that for support or was it not?
That's really important.
Billie Tarascio: Absolutely. A lot of people ask, do I have enough debt to fight them?
Stacey Rogan: Oh, great question. There's not a magic number. I mean, a person who doesn't make a whole lot of money might be bankrupt and unable to pay ongoing living expenses and debts, um, at a very small number and a person who makes a lot of money can carry a really high debt limit and still be just fine.
So there is not an amount if people are on social security disability and they're off of what we call judgment proof. So sometimes those people don't need to file, but I filed those cases because they're being harassed or something like that. And they just want it to stop. So, you know, it's almost a case just to get rid of it for nuisance value because you know, they're being harassed.
They don't have any assets. There's nowhere thing to put a lien on, but the creditors [00:24:00] continue to call them every five minutes and they just can't take it anymore.
Billie Tarascio: If your stuff is in a trust. Is that protected from seizure?
Stacey Rogan: It is assuming the trust is set up properly. Yes. So how does that, you can't get to the money yourself then your creditors can't that that's really the standard.
If your creditors can't get to the money, the trustee can't get to the money fads in the shoes of your creditors. Oh, if it's a kind of a trust and it's set up properly. Where you can't go in and just liquidated as you feel and buy what you want, then it's protected.
Billie Tarascio: Got it. All right. Very good stuff. Now, if, if somebody is going through a divorce and they've got a company that has a lot of debts, can they discharge those individually or does the company have to go through the bankruptcy?
Because as a business owner, I own, you know, most everything I have to sign on personally, regardless of the fact that there's a business. [00:25:00]
Stacey Rogan: Right. So they could discharge their personal liabilities and the seven or the 13. And if they, a company can file a seven that you don't, because there's not a discharge, but it it's a way to liquidate things and get creditors to go away.
Especially if it's businesses closing like a car dealership or something, and you don't have anything left.
Billie Tarascio: The debts that, that are accrued, but the, the, you know, the owner has to make a personal guarantee on everything. So it's kind of in both.
Stacey Rogan: Yes, you can discharge your, um, the personal guarantee from the business debts.
But if the business is still in existence, it will still owe those debts that, that they're separate entities and they would need separate bankruptcies in order to discharge balls.
Billie Tarascio: But if somebody closes their, their business, Yes. And then they want to discharge all the debt, including the stuff that was from the business that has failed.
They can do that.
Stacey Rogan: Absolutely.
Billie Tarascio: Yeah. I see that a lot in divorce. I [00:26:00] see, um, family businesses that were run by both spouses. And then the divorce happens and the divorce can take years. And during that, during those years, when nobody knows how to run the business, it tanks. Yes. And I've got a client right now.
Who's got, he just stopped running his business and he's, and there's a bunch of equipment in storage, but it doesn't have any debts. So would bankruptcy come into play in that situation
or not?
Stacey Rogan: Well, if he has no debts, there's nothing to get rid of. Unless there's like floating leases out there for something or contracts that they're breaching.
So there's probably don't need a bankruptcy. It's just a matter of liquidating his assets and filing a final tax return where you'll see it more is when people, they close the business, but they're still are debts. The lease on the building is a big one because. Um, equipment leases, you know, restaurants have all sorts of equipment and stuff, or even an esthetician.
They have all those lasers nowadays that are really expensive. So [00:27:00] all of those contracts are still out there. They have personal guarantees on them. So if those businesses close, they're still going to owe on all of that.
Billie Tarascio: Got it. All right. Well, this has been super useful. I've learned a lot. I'm sure our listeners will too.
Billie Tarascio: Thank you so much, Stacey. Really appreciate it. We'll have to have you back on to talk about messy financial divorces another time.